UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
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Filed by a Party other than the Registrant [_]
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| [_] | Preliminary Proxy Statement |
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| [X] | Definitive Proxy Statement |
| [_] | Definitive Additional Materials |
| [_] | Soliciting Material Pursuant to Section 240.14a-12 |
Quest Diagnostics Incorporated
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| (Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) |
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| [_] | Fee paid previously with preliminary materials |
| [_] | Fee computed on table |
Action from Insight
Notice of 2021 Annual Meeting of Stockholders
and
Proxy Statement
April 9, 2021
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Notice of 2023 Annual Meeting of Stockholders
and
Proxy Statement
April 6, 2023
 | Working together to create a healthier world, one life at a time | |
 | We help people make the best decisions to improve health by providing high-quality and affordable diagnostic testing insights and services using our scale and extensive reach
•Collaborating with payers, providers and partners to leverage our broad access •Offering the most extensive menu of testing and services •Leveraging our data assets and services to improve population health and enable value-based care •Continuously improving our quality and efficiency by embracing AI, automation and other innovative technologies Who we serve: Patients, Consumers, Physicians, Hospitals, Life Sciences Companies, Employers, Insurers, Public Health Agencies, Communities. And Retailers | |
 | Customer first, Care, Collaboration, Continuous improvement, Curiosity | |
Notice of
One Insights Drive Clifton, New Jersey May |
April 9, 20216, 2023
Dear Fellow Stockholder:
It is ourmy pleasure to invite you to attend Quest Diagnostics’ 20212023 Annual Meeting of Stockholders (the “Annual Meeting”). At the meeting,Annual Meeting, stockholders will vote:
• to elect nine directors;
• to approve, on an advisory basis, the executive officer compensation disclosed in the Company’s 2021 proxy statement;
• to ratify the appointment of our independent registered public accounting firm for 2021; and
• to consider and vote on a stockholder proposal, as describedthe following, in the accompanying proxy statement, if properly presented.
Dueaddition to concerns relating to the coronavirus (COVID-19) pandemic, and to support the health and well-being of our employees and stockholders, this year’s annual meeting will be virtual and will be held entirely online via live webcast at www.cesonlineservices.com/dgx21_vm. If you wish to attend the Annual Meeting, please see pages 63-66 in the “Frequently Asked Questions” section of this Proxy Statement for more information. While you will not be able to attend the Annual Meeting at a physical location, we have designed the virtual Annual Meeting to provide our stockholders the opportunity to actively participate in the Annual Meeting.
Stockholders also will transact any other business as may properly come before the meetingAnnual Meeting or any adjournment or postponement thereof.thereof:
| ● | to elect ten directors; |
| ● | to approve, on an advisory basis, the executive compensation disclosed in the accompanying proxy statement; |
| ● | to recommend, on an advisory basis, the frequency of the stockholder advisory vote to approve executive officer compensation; |
| ● | to ratify the appointment of our independent registered public accounting firm for 2023; |
| ● | to approve the Amended and Restated Employee Long-Term Incentive Plan; and |
| ● | a stockholder proposal, as described in the accompanying proxy statement, if properly presented. |
Attendance at the meetingAnnual Meeting is limited to stockholders at the close of business on March 22, 2021,20, 2023, or their duly appointed proxy holder.
We enclose our proxy statement, our Annual Report and a proxy card; distribution of these materials is scheduled to begin on April 9, 2021. 6, 2023. Your vote is very important.important. We urge you to submit your proxy even if you plan to attend the Annual Meeting. Most stockholders may submit a proxy via mail, telephone or the Internet. Instructions on how to submit your proxy are included with your proxy card and these proxy materials. Please submit your proxy promptly.
Thank you for your continued support of Quest Diagnostics.
Sincerely,
Proxy Summary
This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting.
Board Nominees
The following table provides summary information about our director nominees.
Stephen H. Rusckowski, who served as our CEO and President until November 1, 2022, served as our Chairman through March 31, 2023.
Our Board is firmly committed to pay for performance. The table above outlines the main components of our compensation program for executive officers in
The average
Our Compensation Discussion and Analysis, which includes a discussion of our program’s “Best Practices,” begins on page
2022 Business Performance Highlights Leveraging our Capabilities and Collaborating We increased base business (excluding COVID-19 testing) revenues by 5% to $8.4 billion. We generated COVID-19 testing revenues of $1.45 billion. We generated adjusted diluted earnings per share (“EPS”) of $9.95. We took advantage of our strong health plan access. We augmented our extended care offering. We expanded the plans with which we have a value-based contracting relationship, fostering better alignment with the health plans. We also renewed our longstanding strategic relationship with Blue Cross and Blue Shield of Florida, Inc.
In Advanced Diagnostics, we invested in areas to further differentiate and grow our advanced diagnostics value proposition, our bioinformatics capabilities and our women’s health sales force, and to accelerate growth in oncology, hematology, and pharma services. We introduced the Solid Tumor Expanded Panel to help oncologists with therapy selection and Quest AD Detect, a blood test to aid in the early assessment of Alzheimer’s disease. We saw strong growth in prenatal genetic testing and pharma services.
We consummated important acquisitions, including Pack Health and the outreach testing business of Summa Health. Continuous Improvement We concluded consolidation of our urinalysis testing onto a new highly automated platform. We implemented new semi-automated technology in parasitology and are expanding use of a highly automated microbiology platform that makes use of artificial intelligence to assist with sample analysis. We made significant progress transferring immunoassay tests to a more automated platform and expect to finish this project in 2023. We implemented several initiatives to improve talent retention, including capability-building programs, and launched plans for a new daily management system for our frontline employees. We increased customer adoption of our digital self-service channels, reducing demand in our call centers. We approached our Invigorate cost excellence program goal of annual savings and productivity improvements of 3% of our costs. Disciplined Capital Deployment In February 2023, we announced the twelfth increase in our quarterly common stock cash dividend since 2011, increasing the dividend by approximately 7.6%, from $0.66 per common share to $0.71 per common share. We repurchased $1.4 billion of our common stock in 2022. Through the end of 2022, we have returned approximately $9.6 billion to stockholders since the beginning of 2013: $7.1 billion through common stock repurchases (including $1.8 billion associated with pre-tax proceeds from divestitures), and $2.5 billion through common stock dividends. Management Transition On November 1, 2022, James E. Davis, previously Executive Vice President, General Diagnostics, was appointed Chief Executive Officer and President of the Company, succeeding Stephen H. Rusckowski, who served as our Chief Executive
Officer and President for more than a decade. Mr. Davis became Chairman of the Board on April 1, 2023, succeeding Mr. Rusckowski, who served as Chairman of our Board through March 2023. On July 11, 2022, Sam A. Samad joined our Company as an Executive Vice President and, on July 25, 2022, became our Chief Financial Officer. Mr. Samad succeeded Mark Guinan, who in February 2022 announced his intention to retire.
Information About Our Corporate Governance
Proposal No.
Our Board currently has
On July 11, 2022, Sam A. Samad joined our Company as an Executive Vice President and, on July 25, 2022, became our Chief Financial Officer. Mr. Samad succeeded Mark Guinan, who in February 2022 announced his
After considering the recommendation of the Governance Committee, the Board nominated the nominees below to serve as directors of Quest
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR EACH NOMINEE. PROXIES SOLICITED BY THE BOARD WILL BE VOTED FOR EACH NOMINEE UNLESS OTHERWISE INSTRUCTED.
The Board believes that good corporate governance, designed to protect and enhance stockholder value, is important. The Company has strong corporate governance structures, processes, policies and practices. We engage with our stockholders and listen to their concerns. Our Board benefits from knowledgeable independent directors.
The Board has adopted Corporate Governance Guidelines to enhance its own effectiveness and to demonstrate its commitment to strong corporate governance for the Company. The Board reviews these Guidelines no less frequently than annually, including in response to changing regulatory requirements, evolving practices and the concerns of our stockholders. The Company also has adopted a Code of Ethics applicable to all directors, officers and employees. The Corporate Governance Guidelines and Code of Ethics are published on our website at www.QuestDiagnostics.com. The information on or accessible through our website is not incorporated by reference in this Proxy Statement.
Corporate
The Company and the Board take seriously the responsibility of corporate stewardship, which includes
The Board assesses the independence of each director annually, and of each director nominee, in accordance with the Company’s Corporate Governance Guidelines and New York Stock Exchange (“NYSE”) listing standards. The independence guidelines in the Corporate Governance Guidelines are consistent with the independence requirements in the NYSE listing standards and include guidelines as to categories of relationships that are considered not material for purposes of director independence.
All members of the Audit and Finance Committee, the Governance Committee, and the Compensation and Leadership Development Committee must be independent under NYSE listing standards and the Company’s Corporate Governance Guidelines. Pursuant to the charters of the Audit and Finance Committee and the Compensation and Leadership Development Committee, respectively, members of these committees also must satisfy separate independence standards based on requirements of the Securities and Exchange Commission (“SEC”) and NYSE, respectively.
The Board has determined that a substantial majority
The Board has determined the following directors and nominee to be independent:
Mr.
Stockholder Access and Outreach
Stockholders and any other person may communicate with the Board by sending comments to our Lead Independent Director through the web form available at www.questdiagnostics.com/ We have a program of ongoing dialogue with our investors and regularly reach out to large stockholders to listen to their concerns and to inform them about the Company. Our Board receives reports regarding these discussions. During the past year, we reached out to stockholders holding approximately two-thirds of the Company’s outstanding common stock, and held discussions with those that accepted our invitation and others that reached out to us. These discussions addressed topics such as corporate governance, executive pay, company strategy and the Company’s approach to other ESG issues. During these discussions during the past year, investors generally shared positive feedback regarding the Company’s structuring of and overall approach to corporate governance and executive pay, as well as the other topics discussed. Further, our Corporate Governance Guidelines publicly affirm the Board’s long-standing approach of being available for discussions with stockholders in appropriate circumstances.
The Audit and Finance Committee
Our Corporate Governance Guidelines provide that directors are encouraged and expected to attend the Annual Meeting. All
The Governance Committee is responsible for reviewing with the Board, on an annual basis, the composition of the Board as a whole and whether the Company is being well served by the directors, taking into account each director’s independence, skills, experience, tenure, availability for service to the Company and other factors the Governance Committee deems appropriate. The Governance Committee is responsible for recommending director nominees to the
Board, including re-nomination of persons who are already directors. The Governance Committee does not set specific, minimum qualifications that nominees must meet in order for the Governance Committee to recommend them to the Board, but rather believes that each nominee should be evaluated based on his or her own merits, taking into account the Company’s needs, Board succession planning considerations, and the overall composition of the Board, which includes an analysis of current directors’ skills and experience. Recommendations are made by the Governance Committee in accordance with the Company’s Corporate Governance Guidelines, which set forth the Company’s philosophy regarding Board composition and identify key qualifications and other considerations. The Governance Committee believes that the Board should be comprised of individuals whose backgrounds and experience complement those of other Board members, and considers whether a prospective nominee promotes a diversity of talent, skill, tenure, expertise, background, perspective and experience, as well as diversity with respect to age, gender identity, race, ethnicity, place of residence, sexual orientation and specialized experience. The Governance Committee does not assign specific weights to particular criteria and nominees are not required to possess any particular attribute.
The key qualifications and other considerations set forth in the Company’s Corporate Governance Guidelines are set forth below.
In recruiting and selecting a Board candidate, as a supplement to the key qualifications and other considerations for director candidates outlined in the Corporate Governance Guidelines, the Governance Committee considers other important skills and professional experiences to determine whether a candidate has skills and experience well-suited for the expected needs of the Board, including whether the skills and experience complement those of the other Board members or nominees. The table below includes, for each director nominee, an illustrative, non-exhaustive listing of supplemental skills and experiences that the Board considered most relevant when nominating that nominee. Although a check mark indicates that the Board relied upon the specific skill or experience in making its decision, the absence of a check mark does not mean the nominee does not possess the specific skill or experience. The biographies beginning on page
The Governance Committee regularly reviews the Board’s composition to ensure that we continue to have the right mix of skills, diversity, background and tenure reflected on the Board. Our Board’s membership represents a balanced approach to director tenure, allowing the Board to benefit from the experience of longer-serving directors as well as the fresh perspectives of newer directors. The composition of the director nominee group (assuming Dr. Diaz’s election at the Annual Meeting) with respect to tenure and ethnic and gender diversity are shown below:
The Board is committed to fostering diversity of the Board. In addition to valuing diversity of talent, skill, tenure, expertise and experience, the Board seeks to include directors with diverse backgrounds, including with respect to race, ethnicity, age, gender identity and sexual orientation, in order to ensure that diverse perspectives are included on the Board. When conducting searches for new directors, it is the Board’s policy to actively and routinely seek a diverse candidate pool, including women and ethnically diverse candidates. The Board assesses the effectiveness of this process each time a new director is nominated to join the Board.
The Governance Committee considers suggestions from many sources, including stockholders, regarding possible candidates for director. Stockholders may recommend candidates for consideration as director by sending comments to our Lead Independent Director through the web form available at www.questdiagnostics.com/
Board Committees
During In
For each year, a schedule of Board meetings is established before the year begins. Committee meetings are generally scheduled for
Set forth below is a brief description of each standing committee and its function, its membership and the number of meetings it held during
Board Leadership Structure
At Quest Diagnostics, we recognize the importance of good corporate governance and value the leadership and input of the independent members of our Board. The Board believes that its leadership structure should be determined by what is in the best interest of
We also have other mechanisms in place to promote the appropriate level of independence and oversight in Board decisions. See “Corporate Governance Highlights” on page
Board Oversight of Company Culture and Human Capital
The Board is committed to fostering a strong culture of compliance and ethical conduct and has structured its committees and their activities to support its commitment. The Board supports management’s promotion of a corporate culture of integrity, ethical behavior and compliance with laws and regulations and
Board, Committee and CEO Evaluation Process
The Board annually conducts a self-evaluation of its performance and effectiveness. The charter of each standing committee of the Board, discussed under the heading “Board Committees” beginning on page 12, calls for the committee to conduct an annual self-evaluation of its performance, and
Prior to the meeting at which each annual self-evaluation occurs, each member of the Board and the committees receives a discussion outline, which encourages the directors to consider the Board’s or committee’s structure, processes, overall effectiveness, and improvement since the previous year’s assessment. In addition, our General Counsel discusses individually with each director, and with members of our senior management, the self-evaluation items and compiles feedback received for discussion with the Lead Independent
Periodically, the Board engages an independent consultant to assist with the evaluation, including evaluating individual director performance. When the Board evaluates individual director performance, input from other directors and senior management is considered, in a process that protects anonymity to ensure honest feedback. In these situations, the independent consultant and the Lead Independent Director together review the results of the individual director evaluations with the individual directors. The Lead Independent Director reviews the remaining items with the Board and assists the Board in identifying action items as well as items for further review.
In addition, the Compensation and Leadership Development Committee, pursuant to its charter, conducts an annual review of the Chief Executive Officer’s performance, receives input on the review from the Board, and reports the results of its review to the Board. Pursuant to our Corporate Governance Guidelines, the Board, led by the Lead Independent Director, reviews the Compensation and Leadership Development Committee’s report in order to ensure that the Chief Executive Officer is providing the necessary leadership for the Company in light of the Company’s current and
Board Role in Risk Oversight
The Board and its committees play an active role in overseeing the Company’s key
leads the Company’s enterprise risk management
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• Receives regular updates from management and the Board’s committees regarding their activities with respect to the program. | • Oversees risk management and compliance with respect to information security systems and processes. • Reviews adequacy and effectiveness of our cybersecurity program and regularly receives reports from management on cybersecurity matters. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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• Has been delegated primary responsibility for overseeing our enterprise risk management program by the Board.
• Receives regular updates from management regarding our enterprise risk management program, including with respect to business continuity.
• Regularly oversees compliance with securities and accounting rules and regulations. | • Reviews policies, programs and reports related to environmental sustainability matters.
• Reviews the Company’s overall ESG priories, goals and strategies. • Receives regular reports from management regarding these topics. |
 2023 Proxy Statement | 18 |
| Compensation and Leadership Development Committee | Quality and Compliance Committee | |
• Annually reviews compensation arrangements for members of our executive leadership team. • Assesses whether such compensation arrangements encourage risk taking that is reasonably likely to have a material adverse effect on the Company. | • Reviews the adequacy and effectiveness of policies and programs to ensure compliance with laws and regulations applicable to our business (other than with respect to securities and accounting).
• Oversees the Company’s data privacy program.
• Reviews the adequacy and effectiveness of our medical quality program.
• Receives regular reports from management regarding these topics. | |
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Related Person Transactions
The Company has a written policy pursuant to which it evaluates proposed transactions involving a related person and the Company in which the amount involved exceeds $120,000. A related person is any director or executive officer of the Company, any immediate family member of a director or executive officer, or any person who owns 5% or more of the Company’s outstanding common stock. The office of the General Counsel is primarily responsible for the administration of the policy and for determining, based on the facts and circumstances, whether the Company or a related person has a direct or indirect material interest in the transaction. Certain transactions are defined not to be related person transactions under the policy.
The Governance Committee reviews any proposed transaction in which a related person has a direct or indirect material interest, except for any compensation arrangements involving an immediate family member of a director or an executive officer. In the event that the General Counsel becomes aware of a related person transaction not approved in advance, the General Counsel will arrange for the related person transaction to be reviewed at the next regularly scheduled meeting of the Governance Committee. Any member of the Governance Committee who is a related person with respect to a transaction under review may not participate in any review, consideration or approval of the transaction.
In considering any related person transaction, the Governance Committee determines whether the transaction is fair to the Company. In considering a proposed transaction involving a director or the immediate family member of a director, the Governance Committee also assesses whether the proposed transaction could reasonably be expected to impact the
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independence of the director under the Company’s Corporate Governance Guidelines, the NYSE listing standards or other applicable rules.
Compensation arrangements involving an immediate family member of an executive officer are reviewed and approved by the Chief Executive Officer and the Senior Vice President, Chief Human Resources Officer, unless such person is an immediate family member of the Chief Executive Officer, in which case the compensation arrangement is approved by the Compensation and Leadership Development Committee. Compensation arrangements involving an immediate family member of a director are reviewed and approved by the Compensation and Leadership Development Committee.
During 2022, there were no related person transactions meeting the requirements for disclosure in this proxy statement.
Policies Regarding Hedging and Pledging our Common Stock; Window Periods
Our directors and executive officers are prohibited from pledging the Company’s common stock to secure a loan and from holding such stock in a margin account. Our directors and employees, including executive officers, are prohibited from entering into transactions or purchasing financial instruments that are expected to hedge or offset, or designed to hedge or offset, a decline in our common stock price, including, but not limited to, the use of financial derivatives (including, for example, prepaid forward contracts, equity swaps, collars, puts and calls or exchange funds). Our directors and employees, including executive officers, also are prohibited from entering into transactions (including, for example, short sales) that establish downside price protection for our common stock. In addition, our directors and executive officers, as well as certain other employees, generally may purchase or sell Company securities only during permitted window periods (generally beginning on the business day following the issuance of our quarterly earnings releases and continuing until the end of the second month of the fiscal quarter).
| 19 | 2023 Proxy Statement |
| 2022 Director Compensation Table |
Director Compensation Program for 20202022. No changes were made in the compensation program for directors for 2020, except that, beginning in 2020, directors no longer had the ability to (i) elect to receive annual retainer fees in stock options or (ii) defer annual retainer fees to a date that is prior to their termination of service as a director. As part of the program of shared sacrifice that the Company adopted in response to the COVID-19 pandemic, our directors voluntarily reduced their cash compensation for the third quarter of 2020 by 25%.
The following table sets forth the 20202022 compensation of our non-employee directors then in office. No changes to our director compensation program were made in 2022. Mr. Rusckowski our onlyand Mr. Davis, each of whom served as an employee director during 2020,2022, received no additional compensation in 2022 for serving as director. None of our non-employee directors receives any consulting or other non-director fees from the Company.
| Director | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1)(2) | Total ($) | ||
| Vicky B. Gregg | 105,938 | 167,981 | 273,919 | ||
| Wright L. Lassiter, III | 83,533 | 199,933 | 283,466 | ||
| Timothy L. Main | 123,750 | 167,981 | 291,731 | ||
| Denise M. Morrison | 105,938 | 167,981 | 273,919 | ||
| Gary M. Pfeiffer | 146,250 | 167,981 | 314,231 | ||
| Timothy M. Ring | 115,781 | 167,981 | 283,762 | ||
| Daniel C. Stanzione | 162,656 | 167,981 | 330,637 | ||
| Helen I. Torley | 105,938 | 167,981 | 273,919 | ||
| Gail R. Wilensky | 125,625 | 167,981 | 293,606 | ||
| Director | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1)(2) | Total ($) | ||
| Tracey C. Doi | 120,500 | 179,943 | 300,443 | ||
| Vicky B. Gregg | 134,500 | 179,943 | 314,443 | ||
| Wright L. Lassiter III | 120,500 | 179,943 | 300,443 | ||
| Timothy L. Main | 135,500 | 179,943 | 315,443 | ||
| Denise M. Morrison | 117,000 | 179,943 | 296,943 | ||
| Gary M. Pfeiffer | 159,500 | 179,943 | 339,443 | ||
| Timothy M. Ring | 166,000 | 179,943 | 345,943 | ||
| Helen I. Torley | 58,500 | - | 58,500 | ||
| Gail R. Wilensky | 138,000 | 179,943 | 317,943 |
| (1) | Represents the aggregate grant date fair values of the awards. Each of our non-employee directors then in office received a single award of |
| Ms. Gregg | 3,227 | Mr. Ring | 20,687 | |||
| Mr. Lassiter | 1,901 | Dr. Stanzione | 3,227 | |||
| Mr. Main | 3,227 | Dr. Torley | 3,227 |
| Ms. Doi | 2,232 | Mr. Pfeiffer | 25,236 | |
| Ms. Gregg | 2,712 | Mr. Ring | 24,179 | |
| Mr. Lassiter | 4,680 | Dr. Torley | 1,420 | |
| Mr. Main | 2,712 | Dr. Wilensky | 2,712 | |
| Ms. Morrison | 5,075 |
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| Ms. Morrison | 3,807 | Dr. Wilensky | 3,227 | |||
| Mr. Pfeiffer | 21,705 |
| (2) | No stock options were awarded to our non-employee directors during |
| Ms. Gregg | - | Mr. Ring | 12,025 | |||
| Mr. Lassiter | - | Dr. Stanzione | - | |||
| Mr. Main | 2,037 | Dr. Torley | 3,260 | |||
| Ms. Morrison | - | Dr. Wilensky | 12,222 | |||
| Mr. Pfeiffer | - |
Annual Cash Retainer Fees. During 2020,2022, our non-employee directors received an annual cash retainer fee. Directors serving on Board committees also received additional retainers for such service, and directors who served as Lead Independent DirectorsDirector and committee chairs each received an additional fee for such service. All such cash retainer fees were paid at annual rates as set forth in the table below.
| Members | Chair | |
| Board of Directors | • | • $40,000 (Lead Independent Director) |
| Audit and Finance Committee | • $13,000 | • $30,000 |
| Compensation and Leadership Development Committee | • $9,500 | • $10,000 |
| Governance Committee | • $7,500 | • $7,500 |
| Quality | • | • $10,000 |
| Executive Committee | • $1,500 | • N/A |
| Cybersecurity Committee | • $7,500 | • $7,500 |
Equity Awards. Each non-employee director participates in the Company’s Long-Term Incentive Plan for Non-Employee Directors (the “Director Plan”). The Director Plan currently authorizes the grant to each non-employee director, on the date of the annual stockholders meeting, of stock options and stock awards covering shares of common stock having an aggregate value on the date of grant not exceeding $500,000. If a person is appointed or elected as a director other than on the date of the annual stockholders meeting, the Board may grant to such director a prorated equity award, in such proportions as the Board may determine. Annual option grants become exercisable, and annual RSUs generally vest and convert to shares of our common stock, in three equal annual installments, beginning on the first anniversary of the grant date, regardless of whether the non-employee director remains a director. The Director Plan also permits the
| 2023 Proxy Statement | 20 |
Board to grant to any non-employee director an equity award for any special service as a director (e.g.(e.g., service on a special purpose committee). Special service equity awards shall not exceed the grant date value of the annual equity award granted to each non-employee director at the most recent annual meeting of stockholders. The exercise price of all stock options issued under the Director Plan is the fair market value of our common stock on the grant date. Options, once vested, will be exercisable through the tenth anniversary of the date of grant even if the director’s service on the Board terminates.
For 2020,2022, the Board fixed the value of the annual equity award to non-employee directors at $168,000$180,000 and determined that the award would be delivered entirely in the form of RSUs. The 20202022 award was granted effective May 19, 2020,18, 2022, with each non-employee director then in service receiving an award of 1,531 1,292RSUs.
A non-employee director may elect to receive annual retainer fees in stock awards in lieu of cash. The number of shares issued in lieu of cash for the retainer fees is based on the fair market value of the stock on the date that the cash payment would otherwise be made.
Opportunity to Defer Compensation. Under the Company’s Deferred Compensation Plan for Non-Employee Directors, each non-employee director may elect to defer, until a date specified by the director or until the director’s
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termination of service as a director, the director’s cash compensation or any stock grants awarded pursuant to the Director Plan. If a director specifies a deferral date that is prior to the director’s termination of service, the payout will occur or commence, as applicable, upon termination of service as a director. Cash amounts deferred may be indexed to (i) a cash account under which amounts deferred earn interest, compounded quarterly, at a rate in effect on the first date of each calendar quarter or (ii) the Company’s common stock.
Changes in Director Compensation Program for 20212023. After consideringNo changes were made in the recommendation of the Compensation Committee, which received input from its independent compensation consultant, the Board determined to (i) increase the annual cash retainer fee paid to our non-employeeprogram for directors to $100,000 (from $96,500), (ii) increase the value of the annual equity award to non-employee directors to $180,000 (from $168,000) and (iii) increase the annual retainer fee paid to members of the Quality, Safety and Compliance Committee to $7,500 (from $7,000).for 2023.
| Stock Ownership Information |
We encourage our directors, officers, and employees to own our common stock, which aligns their interests with the interests of our stockholders. The Company maintains stock ownership and retention guidelines for its directors and executive officers. The guidelines call for our directors to beneficially own not less than 6,000 shares of our common stock. Until a director satisfies the minimum shareholding requirement, directors are required to maintain 75% of net shares received from vesting of RSUs and from the exercise of options. For purposes of determining whether a director has met the minimum shareholding requirements, we count shares subject to unvested RSUs, but not shares subject to stock options. The guidelines for our executive officers are discussed in “Compensation Discussion and Analysis” beginning on page 23.24.
The following tables show the number of shares of the Company’s common stock beneficially owned by (1) each person who is known to the Company to own beneficially more than 5% of the Company’s common stock, (2) each director of the Company and each nominee, (3) each named executive officer currently employed, (4) each named executive officer no longer employed, and (4)(5) all directors, nominees and named executive officers currently employed as a group. Information in the table regarding the Company’s directors, nominees and executive officers is provided as of March 10, 2021.8, 2023.
| Name | Number of Shares Beneficially Owned | Percentage of Class |
| The Vanguard Group (1) | 14,337,685 | 10.64 |
| BlackRock, Inc. (2) | 11,464,215 | 8.50 |
| Name | Number of Shares Beneficially Owned | Percentage of Class | |
| The Vanguard Group (1) | 13,973,339 | 12.27 | |
| BlackRock, Inc. (2) | 12,391,327 | 10.9 | |
| State Street Corporation (3) | 5,879,980 | 5.16 |
| (1) | The business address of The Vanguard Group is 100 Vanguard Blvd., Malvern, PA 19355. The ownership information is based on the information contained in the Schedule |
| (2) | The business address of BlackRock, Inc. is 55 East 52nd Street, New York, New York 10055. The ownership information is based on the information contained on a Schedule |
| Name | Shares(1) | Shares Subject to Stock Options Exercisable within 60 days(2) | Total(3) | Shares Underlying RSUs(4) | ||||||||
| Named Executive Officers | ||||||||||||
| Stephen H. Rusckowski | 239,245 | 549,828 | 789,073 | 45,183 | ||||||||
| Mark J. Guinan | 76,429 | 163,915 | 240,344 | 12,365 | ||||||||
| James E. Davis | 37,683 | 157,321 | 195,004 | 12,249 | ||||||||
| Carrie Eglinton Manner | 19,737 | 120,617 | 140,354 | 10,514 | ||||||||
| Manuel O. Mendez | 1,998 | 22,275 | 24,273 | — | ||||||||
| Directors and Nominees | ||||||||||||
| Vicky B. Gregg | 10,759 | — | 10,759 | 3,227 | ||||||||
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| 21 | 2023 Proxy Statement |
| Name | Shares(1) | Shares Subject to Stock Options Exercisable within 60 days(2) | Total(3) | Shares Underlying RSUs(4) | ||||||||
| Wright L. Lassiter III | — | — | — | 1,909 | ||||||||
| Timothy L. Main | 16,361 | 2,037 | 18,398 | 3,227 | ||||||||
| Denise M. Morrison | — | — | — | 4,866 | ||||||||
| Gary M. Pfeiffer | — | — | — | 25,821 | ||||||||
| Timothy M. Ring | — | 12,025 | 12,025 | 31,137 | ||||||||
| Daniel C. Stanzione | 25,122 | — | 25,122 | 3,227 | ||||||||
| Helen I. Torley | 1,670 | 3,260 | 4,930 | 3,227 | ||||||||
| Gail R. Wilensky | 26,630 | 12,222 | 38,852 | 3,227 | ||||||||
| All directors, nominees and executive officers as a group (16 persons) | 567,099 | 1,337,838 | 1,904,937 | 175,432 | ||||||||
| (3) | The business address of State Street Corporation is 1 Lincoln Street, Boston, Massachusetts 02111. The ownership information is based on the information contained on a Schedule 13G filed by State Street with the SEC on February 7, 2023. |
| Name | Shares (1) | Shares Subject to Stock Options Exercisable within 60 days (2) | Total (3) | Shares Underlying RSUs (4) | ||||
| Named Executive Officers Currently Employed | ||||||||
| James E. Davis | 62,798 | 241,243 | 304,041 | 39,837 | ||||
| Sam A. Samad | - | - | - | 20,384 | ||||
| Catherine T. Doherty | 64,686 | 79,389 | 144,075 | 7,371 | ||||
| Michael E. Prevoznik | 38,602 | 135,469 | 174,071 | 5,338 | ||||
| Patrick Plewman | 8,562 | 14,727 | 23,289 | 3,796 | ||||
| Directors and Nominees | ||||||||
| Luis A. Diaz, Jr. | - | - | - | - | ||||
| Tracey C. Doi | - | - | - | 2,242 | ||||
| Vicky B. Gregg | 14,419 | 14,419 | 2,712 | |||||
| Wright L. Lassiter III | - | - | - | 4,701 | ||||
| Timothy L. Main | 19,531 | 2,037 | 21,568 | 2,712 | ||||
| Denise M. Morrison | 1,474 | - | 1,474 | 6,174 | ||||
| Gary M. Pfeiffer | - | - | - | 29,523 | ||||
| Timothy M. Ring | - | - | - | 37,434 | ||||
| Gail R. Wilensky | 29,800 | - | 29,800 | 2,712 | ||||
| All directors, nominees and executive officers currently employed as a group (17 persons) | 246,568 | 488,073 | 734,641 | 177,845 | ||||
| Named Executive Officers Formerly Employed | ||||||||
| Stephen H. Rusckowski | 347,348 | 262,400 | 609,748 | 42,250 | ||||
| Mark J. Guinan | 102,648 | 171,849 | 274,497 | 3,390 | ||||
| Carrie Eglinton Manner | 11,683 | - | - | - |
| (1) | Each person has sole voting power and sole dispositive power. |
| (2) | Includes shares of common stock which are subject to options issued under the Amended and Restated Employee Long-Term Incentive Plan (the “Employee Plan”) or the Director Plan, as applicable, that were exercisable as of, or would become exercisable within 60 days of, March |
| (3) | Each named executive officer, director and nominee beneficially owned less than 1% of the shares of common stock outstanding. All directors, nominees and named executive officers as a group beneficially owned less than 2% of the shares of common stock outstanding. |
| (4) | Shares of common stock corresponding to RSUs reported in this column are not considered beneficially owned under SEC rules and are not included in the total column in this table. This column also includes phantom stock units held by directors under the Deferred Compensation Plan for Non-Employee Directors. |
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| 2023 Proxy Statement | 22 |
Information Regarding Executive Compensation
Proposal No. 2—2 — Advisory Resolution to Approve Executive Officer Compensation
 | The Board of Directors recommends that you vote FOR approval of our |
Section 14A of the Securities Exchange Act entitles stockholders to vote to approve or not approve, on an advisory (non-binding) basis, our executive officer compensation as disclosed in the Compensation Discussion and Analysis and accompanying compensation tables and narrative. We are asking stockholders to approve the following resolution:
RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed in this proxy statement pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, compensation tables and related narrative disclosure, is hereby APPROVED.
Pay for Performance. As discussed in “Compensation Discussion and Analysis” below, our executive compensation program is designed to pay for performance, to align the interests of our executive officers with the interests of our stockholders and to support the Company’s long- and short-term business goals. Our program reflects many “best practices,” and our executive compensation structure and levels in 20202022 clearly demonstrate our commitment to aligning pay and performance.
Advisory Vote. This vote is advisory. We conduct an advisory vote to approve executive officer compensation annually; the next stockholder advisory vote to approve executive compensation will take place atafter considering the Company’s 2022 annual meetingresults of stockholders.the stockholder vote on Proposal No. 3. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the executive compensation policies and practices described in this proxy statement. The Board and the Compensation and Leadership Development Committee value the opinions of the Company’s stockholders and will take into account the outcome of the vote, in conjunction with such other factors as the Board and the Compensation and Leadership Development Committee consider appropriate, in connection with the Company’s executive compensation program.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL. PROXIES SOLICITED BY THE BOARD WILL BE VOTED FOR THIS PROPOSAL UNLESS OTHERWISE INSTRUCTED.
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| 23 | 2023 Proxy Statement |
Proposal No. 3 — Advisory Vote to Recommend the Frequency of the Executive Officer Compensation Advisory Vote
| ✔ | The Board of Directors recommends an annual advisory vote on executive compensation. |
Pursuant to Section 14A of the Exchange Act, we are required, at least once every six years, to hold a stockholder advisory vote to recommend the frequency with which we conduct a stockholder advisory vote on executive compensation. This proposal gives you the opportunity to vote, on an advisory (non-binding) basis, on how often the Company will conduct a stockholder advisory vote on executive officer compensation. You may vote on whether you prefer that the Company conduct such an advisory vote every one, two, or three years. You may also vote to abstain.
Annual Vote Recommended. Our Board unanimously recommends that stockholders vote in favor of conducting the advisory vote on executive compensation required by Section 14A of the Exchange Act annually. We held our last vote to recommend the frequency of the stockholder advisory vote on executive compensation at our 2017 annual stockholders meeting. In 2017, a significant majority of our stockholders voted in favor of conducting the advisory vote on executive compensation annually, and our experience in the past six years has shown that conducting the vote every year is currently the most appropriate option. An annual vote allows stockholders to provide us with direct and immediate feedback regarding our executive compensation program. It also fosters stockholder communications and is consistent with our practice of engaging with our stockholders, and obtaining their input, on our executive compensation program. The Board is open to receiving from our stockholders at any time specific concerns regarding the Company’s executive compensation program.
Advisory Vote. This vote is advisory. The Board and the Compensation and Leadership Development Committee value the opinions of the Company’s stockholders and will take into account the outcome of the vote, in conjunction with such other factors as the Board and the Compensation and Leadership Development Committee consider appropriate, when determining the frequency of future advisory votes on executive compensation.
THE BOARD RECOMMENDS A VOTE TO CONDUCT THE ADVISORY VOTE ON EXECUTIVE COMPENSATION EVERY “ONE YEAR.” PROXIES SOLICITED BY THE BOARD WILL BE VOTED “ONE YEAR” WITH RESPECT TO THIS PROPOSAL UNLESS OTHERWISE INSTRUCTED.
Compensation Discussion and Analysis
Executive Summary
Introduction
The Compensation and Leadership Development Committee (the “Committee”) determined 20202022 compensation for the Company’s named executive officers after considering, among other things, the Company’s performance (including our continued response to the COVID-19 pandemic), the competitive market for executive talent, and the current environment in the healthcare industry, including in diagnostic information services. We believe that our executive compensation structure, compensation opportunity levels, and pay outcomes in 20202022 reflect our firm commitment to the core principles of our executive compensation philosophy, which is designed to motivate leaders, and to align pay with performance, the Company’s financial results and the interests of stakeholders, and also focus management’s attention on implementing our business strategy.stakeholders. Our named executive officers are listed below.
| Officer | Title | |
| Chairman, Chief Executive Officer and President | ||
| Executive Vice President, | ||
| Senior Vice President, Regional Businesses | ||
| Michael E. | Senior Vice President, General Counsel | |
| Patrick Plewman | Senior Vice President, Diagnostic Services |
| 2023 Proxy Statement | 24 |
| Former Executive Officers | Former Title | |
| Stephen H. Rusckowski | Chairman, Chief Executive Officer and President | |
| Mark J. Guinan | Executive Vice President, | |
| Carrie Eglinton Manner | Senior Vice President, Advanced | |
*Mr. Mendez resigned employment effective February 22, 2021.
20202022 Company Performance
In athe third year dominated byof the COVID-19 pandemic, we broughtcontinued to bring critical COVID-19 testing to our countrycountry. The nation’s demand for COVID-19 testing diminished, as expected, over the course of 2022, and deliveredthat diminished demand resulted in an overall decline in 2022 from the record revenues, earnings and cash from operations. Significant declinesoperations the Company generated in 2021. The Company still generated $1.45 billion in COVID-19 testing revenues, and the Company’s businessrevenues excluding revenue associated with its COVID-19 testing business (the “base business”) earlygrew 5% in 2020 recovered rapidly during the summer and fall2022. The strong growth of 2020, although theour base business, did not return to 2019 (pre-COVID-19 pandemic) levels. Continued high demand forcombined with our continued strong provision of COVID-19 testing, drove our financial performance during the second half of 2020.2022.
| Results | Change | |||
| Reported: | ||||
| Net revenues | $9.4BB | 22% | ||
| Operating income as a percentage of net revenues | 20.9% | 5% | ||
| Diluted earnings per share from continuing operations | $10.47 | 71% | ||
| Cash provided by operations | $2.0BB | 61% | ||
| Adjusted: | ||||
| Operating income as a percentage of net revenues | 23.4% | 6.4% | ||
| Diluted earnings per share from continuing operations | $11.18 | 70% |
| Results | Change | |||
| Reported: | ||||
| Net revenues | $9.9BB | (8.4)% | ||
| Operating income as a percentage of net revenues | 14.5% | (7.6) bps | ||
| Diluted earnings per share (“EPS”) | $7.97 | (48.7)% | ||
| Cash provided by operations | $1.7BB | (23.1)% | ||
| Adjusted: | ||||
| Operating income as a percentage of net revenues | 17.6% | (6.2) bps | ||
| Diluted EPS | $9.95 | (30.1)% |
Adjusted diluted EPS is a non-GAAP financial measure. See Annex A includes reconciliations of adjusted measures for a reconciliation to measuresa financial measure reported under accounting principles generally accepted in the United States.U.S. GAAP.
| COVID-19 Pandemic |
In 2020, we were2022, Quest Diagnostics remained at the forefront of the response to the COVID-19 pandemic, playing a pivotal role to broaden access to laboratory insights to help people lead healthier and safer lives. We provided both molecular diagnostic and antibody serology tests to aid in the diagnosis of COVID-19 and the detection of immune response to the virus, andvirus. From the beginning of the pandemic through December 31, 2022, we have performed over 30approximately 77 million of these tests. BeginningWe built up and maintained the testing capacity to handle surges in March 2020, weCOVID-19 testing demands, including using our national courier, air fleet and logistics network to balance volume across approximately two dozen COVID-19 testing laboratories, and also through our laboratory referral partner program. We worked closely with federal, state and local governments, healthcare organizations, payers, suppliers, retailers, trade associations and other laboratories in the effort to bring as
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much COVID-19 testing as possible to the American people. We developed COVID-19 testing, built testing capacity and implemented innovative new testing models. We also provided data on COVID-19 testing that we conducted to federal, state and local public health authorities, including the federalU.S. Centers for Disease Control and Prevention, andPrevention. In addition, we participated in studies with government and private institutions, aiding COVID-19 public health response and research. All of our employees, including our dedicated laboratory professionals, phlebotomists, air fleet team, and couriers took tremendous pride in the role we played and worked tirelessly to help patients and communities access quality COVID-19 testing. As the impact of COVID-19 moderates, we remain active in the continued response to COVID-19, including supporting ongoing testing needs and public health response.
During 2020, weWe also sawcontinued to see how underserved communities were disproportionately impacted by COVID-19COVID-19. Quest for Health Equity, our initiative with tragic consequences. With the Quest Diagnostics Foundation, wewas launched Quest for Health Equity, a $100 million-plus initiative to reduce health disparities in underserved communities.communities in the U.S. This multi-year initiative which will focus on people of color, elderly and homeless populations in locations throughout the United States, will provideprovides a combination of testing services, education programs, alliances and financial support to efforts seeking to find new ways to address health disparities. Since its inception, we have committed approximately $30 million to approximately 65 programs launched across the U.S. and Puerto Rico, including supporting COVID-19 testing and vaccination events, wellness events, educating young students on healthy nutrition choices and expanding research and mentorship opportunities for Black and Hispanic scholars. Numerous Quest for Health Equity undertakings demonstrate our commitment to federally-qualified health centers and the people they serve, including by providing free lab testing services.
| 25 | 2023 Proxy Statement |
Our approach to fighting the COVID-19 pandemic has been rooted in our vision of empowering better health through diagnostic insights.purpose and strategy. We believe that the challenges we are facingfaced from the COVID-19 pandemic have brought us together, made us a stronger Companycompany and will help us capture the substantial opportunities in front of us. The following table highlights additional 2020 progress on our two-point strategy.during 2022.
| Summary Highlights of | |||
| Leveraging our Capabilities and Collaborating | |||
• We increased base business revenues by 5% to $8.4 billion. • We generated COVID-19 testing revenues of $1.45 billion. • We generated adjusted diluted EPS of $9.95. • We took advantage of our strong health plan access. We augmented our extended care offering. We expanded the plans with which we have a value-based contracting relationship, fostering better alignment with these health plans. We also renewed our longstanding strategic relationship with Blue Cross and Blue Shield of Florida, Inc. • We continued to work with health systems to help them execute their lab strategy, started providing laboratory management services to Lee Health in Florida, and entered into an agreement to provide lab management services to Northern Light Health in Maine. We also were awarded a group purchasing agreement for our laboratory stewardship solution, including Quest Lab StewardshipTM Enterprise powered by hc1®, with Premier Inc., a leading healthcare improvement company uniting an alliance of hospitals, health systems and providers. | • In Advanced Diagnostics, we invested in areas to further differentiate and grow our advanced diagnostics value proposition, our bioinformatics capabilities and our women’s health sales force, and to accelerate growth in oncology, hematology, and pharma services. We introduced the Solid Tumor Expanded Panel to help oncologists with therapy selection and Quest AD Detect, a blood test to aid in the early assessment of Alzheimer’s disease. We saw strong growth in prenatal genetic testing and pharma services. • Revenues from our QuestHealthTM consumer-initiated testing offering, including both base business and COVD-19 testing, increased to $96 million. We continued to invest in our offering, launching an enhanced digital platform with a more powerful and consumer-friendly user experience designed to better acquire, convert and retain more customers. We collaborated with Walmart, to make consumer-initiated testing available through Walmart.com, and with eMedTM, to launch a COVID-19 rapid antigen test with observed collection, helping individuals meet travel and other observed collection and test report requirements. We increased to more than 27.5 million registered users in our MyQuest® health portal. • We consummated important acquisitions, including Pack Health and the outreach testing business of Summa Health. | ||
| Continuous Improvement | |||
• We concluded consolidation of our urinalysis testing onto a new highly automated platform. • We implemented new semi-automated technology in parasitology and are expanding use of a highly automated microbiology platform that makes use of artificial intelligence to assist with sample analysis. • We made significant progress transferring immunoassay tests to a more automated platform and expect to finish this project in 2023. | • We implemented several initiatives to improve talent retention, including capability-building programs, and launched plans for a new daily management system for our frontline employees. • We increased customer adoption of our digital self-service channels, reducing demand in our call centers. • We approached our Invigorate cost excellence program goal of annual savings and productivity improvements of 3% of our costs. | ||
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| 2023 Proxy Statement |
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We also continued to deliver disciplined capital deployment:
| In February | |||
• | We repurchased | • Through the end of |
Incentive Compensation Outcomes and Alignment with Performance
The Committee’s approach to annual incentive compensation generally has been to tie annual incentive compensation to key operating goals and to establish targets that are challenging, yet attainable. The average 20202022 annual incentive payout for our named executive officers (excluding Mr. Mendez,Ms. Eglinton Manner, who forfeited hisdid not receive an annual incentive payment upon his resignation)payout for 2022) on our annual cash incentives under the Senior Management Incentive Plan (“SMIP”) was 171%131% of target.
Payout on performance share awards for the three-year performance period ended December 31, 20202022 was 195%196% of target. The following table summarizes annual incentive and performance share payouts for the two most recent performance periods for our named executive officers.
| Annual Incentive Payout (% of target) | Performance Share Payout for 3-year performance period (% of target) | |||
| Performance period ended December 31, 2022 | 131 (average) | 196 | ||
| Performance period ended December 31, 2021 | 145 | 200 |
*Excludes the annual incentive payment to Mr. Mendez because it was paid at a guaranteed level in connection with his joining the Company.
Our total stockholder return (“TSR”) for recent periods, relative to relevant publicly traded comparator groups, is set forth below.
| 1-year TSR (%) (2020) | 3-year TSR (%) (2018-20) | 5-year TSR (%) (2016-20) | |||||
| Quest Diagnostics Incorporated | 14.0% | 28.9% | 85.5% | ||||
| Compensation Peer Group Median | 19.2% | 54.9% | 81.2% | ||||
| S&P 500 Index | 18.4% | 48.8% | 103.0% | ||||
| S&P 500 Health Care Industry Index | 13.4% | 45.9% | 73.4% |
| 1-year TSR (%) (2022) | 3-year TSR (%) (2020-22) | 5-year TSR (%) (2018-22) | ||||||||||
| Quest Diagnostics Incorporated | (7.8 | )% | 55.6 | % | 75.8 | % | ||||||
| Compensation Peer Group Median | (7.4 | )% | 20.6 | % | 48.9 | % | ||||||
| S&P 500 Index | (18.1 | )% | 24.8 | % | 56.9 | % | ||||||
| S&P 500 Health Care Industry Index | (2.0 | )% | 40.3 | % | 80.5 | % | ||||||
The TSR shown combines stock price appreciation and reinvestment of dividends paid during the relevant performance period, thereby allowing fortaking into consideration the effect of divergent dividend policies.
Taken in the aggregate, the results of our annual and long-term incentive programs demonstrate that the Committeecompensation has been sensitive to Company performance. Annex B sets challenging performance goals and that our named executive officers receive compensation based on the achievement of those goals. Please also see the charts, on pages 31 and 37, respectively, discussingforth historical payouts for our annual incentive compensation and performance share awards.awards for each year since 2005.
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20202022 Compensation Program Changes
In furtherance of our executive compensation philosophy, in February 20202022, due to the uncertain impact of the COVID-19 pandemic on the operating environment, the Committee determined to continue to measure base business revenues and COVID-19 testing revenues separately for purposes of annual incentive compensation and performance share awards. In addition, the Committee revised the mix of equity awards for our executive officers with the CEO awards updatedother than our Chief Executive Officer, to further emphasize further awards subject to performance conditions. The Committee determined that awards to our other executive officers, and to the remainder of our most senior employees, would consist of 50% performance shares, 25% options and 25% RSUs, mirroring the mix of awards to our Chief Executive Officer. In addition, to increase the reach of the Company’s equity awards program and its benefits, and to enhance the competitiveness of
| 27 | 2023 Proxy Statement |
the Company’s compensation program, the Committee updatedexpanded the 2020 performance sharepool of employees receiving equity awards to include director-level employees.
Certain 2022 Compensation Actions Related to Management Transition
2022 was a performance measure focused on relative TSR, measured relative to companies includedyear of significant transition in the S&P 500 Healthcare Index. Please see “Long-Term Incentive Awards – Introduction,” beginning on page 36.
In addition, asmanagement of our Company. The Committee took numerous actions during 2022 to foster the success of that transition. The following is a summary of compensation actions taken during 2022 that impacted certain of our named executive officers. Details regarding their compensation are discussed further below underin this Compensation Discussion and Analysis.
Mr. Davis. Mr. Davis became CEO-Elect on February 3, 2022, and in February 2022, the heading “AnnualCommittee adjusted his base salary, target annual incentive and annual equity award to reflect his new position. Mr. Davis became CEO on November 1, 2022, and at that time the Committee adjusted his base salary and target annual incentive to reflect his promotion to CEO. The Committee also granted him an additional equity award, with certain terms and conditions different from his annual equity award, effective November 1, 2022 intended to provide him an incentive in his new role.
Mr. Samad. Mr. Samad joined the Company in July 2022 to become its Chief Financial Officer. At that time, the Committee established his base salary and target annual incentive and granted to him an annual equity award (structured consistent with the annual equity awards issued to our named executive officers in the normal course in February 2022) commensurate with his position. To compensate Mr. Samad for certain forfeitures incurred in connection with the termination of his employment from his immediately preceding employer and as a sign-on inducement, the Committee agreed that Mr. Samad’s annual incentive award for 2022 would be paid based on his annualized base salary, rather than his salary earned at the Company during 2022, and approved for Mr. Samad: (i) a lump-sum cash payment of $1,200,000 (the “Make Whole Cash Incentive Compensation – COVID-19 Response Plan” on page 32, after considering the impactPayment”); and (ii) a grant of restricted stock units (“RSUs”) with a value of $1,500,000 (the “Make Whole RSUs”). 50% of the COVID-19 pandemicMake Whole RSUs are scheduled to vest on each of the Company’s operationsfirst and second anniversaries of the importantgrant date. Mr. Samad is required to refund the Make Whole Cash Payment if he voluntarily terminates employment or if the Company terminates his employment for willful misconduct, in each case at any time prior to the second anniversary of his start date. Neither the Make Whole Cash Payment nor the Make Whole RSUs received by Mr. Samad will be repeated in 2023, because they are not part of his ongoing compensation. In addition, in future years, Mr. Samad’s annual incentive compensation will be determined on base salary paid to him.
Mr. Plewman. Mr. Plewman became Senior Vice President, Diagnostic Services in April 2022. In connection with his promotion to that role, the Company is playingCommittee adjusted his base salary and target annual incentive and granted him an additional equity award intended to provide him an incentive in respondinghis new role.
Mr. Guinan. Mr. Guinan retired in July 2022 after transitioning his responsibilities to Mr. Samad. The 2022 compensation for Mr. Guinan reflected this planned transition. For example, the COVID-19 pandemic, on June 19, 2020,annual equity award to Mr. Guinan for 2022 was reduced to reflect, and vested at the Committee determined ittime of, his retirement. In addition, his annual incentive payout was in the best interests of the Companyprorated for his partial-year service and stockholders to adopt the COVID-19 Response Plan, adding additional 2020 performance goals under the SMIP.he received retirement treatment for his vested 2017 option award.
Ms. Eglinton Manner. In addition to her regular annual equity award in February 2022, Ms. Eglinton Manner also received a retention equity award having a grant date value of $2.0 million. The retention award consisted of 50% RSUs and 50% performance shares, each cliff-vesting three years after the grant date. Ms. Eglinton Manner forfeited her annual equity award, and her retention equity award, when she terminated employment in June 2022.
Executive Compensation Philosophy
| Core Principles of Our Executive Compensation Philosophy |
| • | Effectively align executive interests with the interests of stakeholders |
| • | Utilize performance-based metrics, with the majority of compensation at risk; |
| • | Motivate executives to achieve results that appropriately balance short-term operating goals and long-term stockholder value creation; |
| • | Support our long-term business strategy and financial objectives; |
| 2023 Proxy Statement | 28 |
| • | Set performance targets that are challenging, yet achievable in the context of both our strategic plan and market and healthcare industry conditions; |
| • | Attract, motivate, reward and |
| • | Target total compensation levels in the context of peer group and market data, as well as consideration of individual executives’ performance, tenure, industry expertise, breadth of responsibilities and succession planning. |
The principal components of compensation for our named executive officers are discussed in the following table.
| Component | Form | Purpose | ||
| Base Salary | Cash (Fixed) | Provides a competitive level of pay that reflects the executive’s experience, role and responsibilities | ||
| Annual Cash Incentive | Cash (Variable) | Rewards achievement of overall corporate financial and, to a lesser extent, non-financial results for the most recently completed fiscal year; | ||
| Long-Term | Equity |
Our program is designed to align executive compensation with the Company’s performance. The Committee has built a strong foundation for our executive compensation program and has taken numerous steps over time to structure the program to align pay with performance. Our long-term awards provide a strong link with stockholder interests and help attract and retain critical employee talent. We also focus on aligning the annual results of our executive compensation program with the compensation of our other employees eligible for annual incentive compensation. Our long-term awards provide a strong link with stockholder interests and help attract and retain critical employee talent. We believe that a balanced compensation program that encourages a long-term focus supports sustained long-term corporate performance.
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As shown in the chart below, the bulk of our senior executives’ compensation is performance based and variable in nature (91% for our CEO and an average of 81%79% for our other named executive officers in 2020)2022). The chart reflects 2020the target direct compensation for our named executive officers who are current employees (i.e., it excludes Mr. Rusckowski, Mr. Guinan and Ms. Eglinton Manner) in effect at the end of 2022 and excludes the value of other benefits and perquisites.
The chart below shows the mix of our 2020 long-term incentive equity awards for executive officers, consisting of performance shares, stock options, and restricted share units (“RSUs”).
The Committee annually awards a significant number of equity awards to eligible employees under the Employee Plan. These equity awards are designed to foster an alignment of stockholder interests with a broader group of employees, to incentivize these employees to continue to perform at a high level and to promote a culture of employee ownership. Components of these awards may include performance shares, stock options and RSUs. Additionally, a significant number of employees at all levels of the Company own our common stock through our Employee Stock Purchase Plan, under which employees may purchase our common stock at a discount, and our Quest Diagnostics Profit Sharing Plan (the “401(k) Plan”).
We make very limited use of employment agreements with executive officers. Of our named executive officers, only Mr. Rusckowski, our Chairman, Chief Executive Officer and President, has an employment agreement (the employment agreement is discussed under the heading “Employment Agreement” on page 47). Our other named executive officers are “at will” employees.
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| 29 | 2023 Proxy Statement |
| The chart on the right shows the mix of our 2022 long-term incentive equity awards for executive officers, consisting of performance shares, stock options, and RSUs. The Committee annually grants equity awards to a significant number of eligible employees under the Employee Plan. These awards may include performance shares, stock options or RSUs, and are designed to foster an alignment of stockholder interests with a broader group of employees, to incentivize these employees to continue to perform at a high level and to promote a culture of employee ownership. In 2022, to increase the reach of the Company’s equity awards program and its benefits, and to enhance the competitiveness of the Company’s compensation program, the Committee expanded the pool of employees receiving equity awards to include director-level employees. Additionally, a significant number of employees at all levels of the Company own our common stock through our Employee Stock Purchase Plan, under which employees may purchase our common stock at a discount, and our Quest Diagnostics Profit Sharing Plan (the “401(k) Plan”). |  |
None of our named executive officers has an employment agreement. Mr. Rusckowski had an employment agreement with the Company that terminated on December 31, 2022.
Best Practices
Our program reflects many best practices.
| What We Do | What We Don’t Do | |
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2023 Proxy Statement30
Independent Compensation Consultant
The Committee has retained Pearl Meyer & Partners, LLC (“Pearl Meyer”) as its independent compensation consultant to assist it in carrying out its responsibilities. The following table provides information regarding the Committee’s independent compensation consultant.Pearl Meyer.
| Independent Compensation Consultant |
| • | Reports directly to, and is directly accountable to, the Committee, which has sole authority to retain and terminate it, at Company expense | |
| • | February |
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| What They Do | ||
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Say on Pay, Stockholder Outreach, and Feedback
At the Company’s 20202022 annual meeting of stockholders, approximately 91%89% of votes cast on the say-on-pay proposal voted in favor of the compensation of our named executive officers. We continued to monitor market practices and trends and to engage with our investors. We reached out to stockholders holding nearly 60%As part of our program of ongoing dialogue with our investors (see “Stockholder Access and Outreach” beginning on page 9, during the Company’s outstanding common stock, andpast year we held discussions with those that acceptedregarding our invitation. These discussions addressed topics such as executive pay, company strategy, and the Company’s approach to environmental, social and governance issues. In these discussions, investorscompensation program. Investors generally shared positive feedback regarding the Company’s structuring of, and overall approach to, executive pay, as well as the other topics discussed.pay. The Committee also received advice from its independent compensation consultantPearl Meyer and considered management recommendations based on the Company’s strategic direction. Insights gained from these efforts, including the investor feedback, from our investors regarding executive pay, were taken into account by the Committee in taking action regarding the Company’s compensation programs.
Setting Executive Compensation
The Committee establishes the Company’s executive compensation philosophy, oversees our executive compensation program and regularly monitors our executive compensation to ensure adherence to our philosophy. The Committee is supported in its work by our Senior Vice President, Chief Human Resources Officer and her staff and the Committee’s independent compensation consultant.Pearl Meyer.
Within the framework of the executive compensation programs approved by the Committee, the Chief Executive Officer recommends to the Committee individual compensation for the executive officers, other than himself. These recommendations are based on market data and an assessment of both Company and individual performance. The Chief Executive Officer also recommends incentive compensation performance measures to align compensation with our corporate objectives. At the Committee’s request, he is present during the portions of Committee meetings in which compensation decisions regarding the named executive officers other than the Chief Executive Officer areis reviewed and decided, but the Committee retains the final authority for all such decisions. The Chief Executive Officer does not make any recommendations to the Committee regarding his own compensation and does not participate in portions of Committee meetings when his compensation is reviewed and decided.
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For each named executive officer, the Committee annually reviews performance and approves all elements of compensation, including base salary, annual incentive awards and long-term incentive awards, except for our broad-based employee benefit programs. After the Committee approves the compensation of our named executive officers, the Committee reports its compensation determinations to the full Board.
To assist the Committee with its review, our Human Resources department, in consultation with the Committee’s independent compensation consultant,Pearl Meyer, annually prepares analyses of each named executive officer’s compensation, including tally sheets. The review includes current and prior yearprior-year compensation information regarding base salary, target and paid annual incentive compensation, deferred compensation activity and balances, aggregate equity grant values,
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perquisites, and allany other compensation, as well as estimates of the amounts payable to each named executive officer upon termination of employment under various circumstances, including in connection with a change in control.
Peer Group
The compensation targets for, and compensation earned by, each named executive officer are analyzed relative to market data for comparable positions in a peer group. In 2020,2022, the Committee reviewed but did not make any changes to, the Company’s peer group.group and, after considering input from Pearl Meyer, determined to make no changes. The peer group continues to consistcurrently consists of the following 1413 companies, which generally are in the healthcare services, equipment and distribution industries.
| • Agilent Technologies, Inc. | • Laboratory Corporation of America Holdings |
| • Baxter International Inc. | • Owens & Minor, Inc. |
| • Becton, Dickinson and Company | • PerkinElmer, Inc. |
| • Boston Scientific Corporation | • Stryker Corporation |
| • DaVita Inc. | • Tenet Healthcare Corporation |
| • Henry Schein, Inc. | • |
| • Hologic, Inc. |
For the named executive officers, the Committee establishes target compensation consistent, to the extent possible, with comparable positions in the peer group. Our practice is to target total direct compensation (including base salary, annual cash incentive targets and long-term incentive awards) at market competitive levels, depending upon the named executive officer’s responsibilities, expertise and experience, along with consideration given to both individual and Company performance.
Specific consideration is given to the weighting of fixed and at-risk components of pay relative to the peer group. No single element of compensation is set without considering the total direct compensation of the named executive officers relative to the marketplace, as well as the impact of any change on the other components of our pay model. When setting each participant’s annual compensation package, the grant date values of prior equity awards are considered, but realized or unrealized gains from prior equity awards are not taken into account.
For 2020,2022, the target total direct compensation for Mr. Rusckowski, theDavis, who became Chief Executive Officer andon November 1, 2022 after having served as CEO-Elect since February 3, 2022, was below the peer group median for chief executive officers. The target total direct compensation, on average, for the other named executive officers, (on average, excluding Mr. Mendez), was slightly belowwithin the competitive range of the peer group median.median, except that in the case of Ms. Doherty and Mr. Prevoznik, their target total direct compensation was below the competitive range as a result of the management transition and their respective benchmarks.
Pay Components
| Base Salary |
We pay base salary to our executives to provide them a steady source of income for their services to the Company. The Committee annually reviews and approves base salaries for the named executive officers. Consistent with our executive compensation philosophy, base salaries are set at levels competitive with the peer group. The Committee determined, basedBased on an assessment of each named executive officer’s position, performance, scope of responsibility, current salary level, and market comparables, that the 2020Committee determined the 2022 base salary for Mr. Guinan and Mr. Mendez would not be increased from the 2019 level, and that the 2020 base salary for Mr. Rusckowski, Mr. Davis and Ms. Eglinton Manner would be increased to the rates, including adjustments, set forth in the following table. Mr. Rusckowski’s base salary had not been increased in at least the past four years. 2020 adjustments and base salary rates for each named executive officer are set forth in the following table.
| Increase in Base Salary (%) | 2020 Base Salary Rate ($) | |||||||
| Stephen H. Rusckowski | 9.1 | 1,200,000 | ||||||
| Mark J. Guinan | – | 620,000 | ||||||
| James E. Davis | 3.4 | 610,000 | ||||||
| Carrie E. Eglinton Manner | 4.3 | 600,000 | ||||||
| Manuel O. Mendez | – | 600,000 | ||||||
As part of the Company’s cost management actions related to the COVID-19 pandemic, 2020 base salaries for the named executive officers were reduced by 25% for Mr. Rusckowski and by 20% for the other named executive officers for
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| 2023 Proxy Statement |
| Increase in Base Salary Rate (%) | 2022 Base Salary Rate ($) | |||
| James E. Davis | (a) | (a) | ||
| Sam A. Samad (b) | N/A | 650,000 | ||
| Catherine T. Doherty | 4.3 | 600,000 | ||
| Michael E. Prevoznik | - | 535,000 | ||
| Patrick Plewman (c) | 7.3 | 525,000 | ||
| Former Executive Officers | ||||
| Stephen H. Rusckowski | 3.0 | 1,287,500 | ||
| Mark J. Guinan | 4.6 | 680,000 | ||
| Carrie Eglinton Manner | 4.1 | 625,000 |
12 weeks (see “COVID-19 Response Plan” below, beginning on page 32). The figures in the table above reflect unreduced base salary rates; the figures reported in the “2020 Summary Compensation Table” beginning on page 43 reflect salary actually paid.
| (a) | The Committee increased Mr. Davis’ base salary to an annual rate of $800,000 in early 2022 in connection with the Board naming Mr. Davis CEO-Elect in February 2022; this was an increase of 27% compared to his 2021 base salary. The Committee increased Mr. Davis’ salary to an annual rate of $1,100,000 effective November 1, 2022 upon Mr. Davis becoming CEO and President; this was an increase of 37.5% compared to his base salary in effect immediately preceding November 1, 2022. |
| (b) | Mr. Samad was not employed by the Company in 2021. |
| (c) | The Committee increased Mr. Plewman’s base salary to the amount shown in 2022 in connection with his promotion to Senior Vice President, Diagnostic Services. The increase in his base salary shown in the table was the increase in his base salary as compared to his base salary in effect immediately prior to his promotion. |
| Annual Cash Incentive Compensation |
Introduction
Our annual cash incentives reward the achievement of annual performance, including operating and strategic goals (both financial and non-financial). We generally pay annual incentives to our executive officers in accordance with the SMIP. Annual cash incentive payments to our named executive officers generally are subject to the achievement of specific performance goals and, if achieved, are scheduled to be paid on or before March 15th of the year following the completion of the performance year. The Committee generally has set performance goals with targets based on the Company’s operating plan and aligned with our two-point business strategy; non-financial goals may be objective or subjective in nature.
The Committee’s approach to annual incentive compensation generally has been to:
| • | Tie annual incentive compensation to key operating goals; | |
| • | Establish targets that are challenging, yet attainable; and | |
| • | Provide for a maximum payout of 200% of target upon achievement of extraordinary performance. |
In recent years, the primary focus of the annual incentive plan has been on revenue and profitability. Because the Committee believes that non-financial business objectives also are important, it also has incorporated non-financial metrics in the annual plan.
The following table sets forth, for each of the past five years, the aggregate annual cash incentive payments as compared to target for the named executive officers.officers for that year. The Committee believes that these results demonstrate the rigor of the targets adopted, that targets have been set at reasonable levels and that annual incentive compensation has been sensitive to Company performance. For additional information, Annex B sets forth the annual cash incentive payments as compared to target for each year since 2005.
| Year | Incentive Payment as Compared to Target (%) | |
| 2016 | 94 | |
| 2017 | 97 | |
| 2018 | 48 | |
| 2019 (average) * | 83 | |
| 2020 (average) ** | 171 |
| Year | Incentive Payment as Compared to Target (%) |
| 2018 | 48 |
| 2019 (average) * | 83 |
| 2020 (average) ** | 171 |
| 2021 | 145 |
| 2022 (average)*** | 131 |
*Excludes the annual incentive payment to Mr. Mendezone former named executive officer because it was paid at a guaranteed level in connection with his joining the Company.
**Excludes Mr. Mendez,one former named executive officer who forfeited his annual incentive payment upon his resignation. Target
***Excludes Ms. Eglinton Manner, who did not receive annual incentive compensation values for 2020 were reduced due to the base salary reductions discussed above.2022.
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Annual Incentive Compensation Goals for 20202022
For 2020,2022, we paid annual incentive compensation under the SMIP to all the named executive officers other than Mr. Mendez, who resigned employment with the Company prior to award payout and whose annual incentive compensation is not discussed.officers. The Committee determined the incentive target for annual incentive compensation for each named executive officer, after considering the factors discussed above, early in 2020.above.
For each named executive officer, the threshold, target and maximum performance criteria were established with payout opportunities set at one-quarter (25%), one-time (100%), and two-times (200%) the target incentive, respectively. For non-discretionary goals, rewards for performance levels between these levels were interpolated. Performance below threshold results in zero payout for that goal.
The Committee may adjust performance measures based on objective criteria to focus on the operating performance of the Company, to avoid unintended compensation results and to ensure that participants are not inadvertently given incentives to avoid taking actions that are in the long-term interest of the Company and its stockholders.
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For 2020,2022, annual cash incentive payouts for the named executive officers were based on performance measured against both financial and non-financial goals; the Committee set the weights for each goal based on its relative importance for each executive officer. Each of the named executive officers had the same goals, except as discussed below for Mr. Plewman. The principal financial goals related to achieving budget targets, including adjusted diluted earnings per share (“EPS”), revenues for the existing portfolioEPS and acquiredbase business revenues. The financial goals were weighted heavily, as compared to non-financial goals, in order to provide a meaningful incentive for management to generate profitable growth. TheDue to anticipated volatility in the Company’s COVID-19 testing revenues, the Committee determined to measure base business revenues and COVID-19 testing revenues separately for purposes of annual incentive compensation.
A non-financial goalsgoal related to key elementsmedical quality, customer experience, employee engagement, and a qualitative assessment of the Company’s strategy. For example,progress developing goals based on the results of its ESG materiality assessment, was assigned a 15% weighting. The medical quality and customer experience goals, which were quantitative, were included to drive operational excellence, to improve the customer experience and to position the Company for the future. The medical quality goals included measures such as missed specimen pickups, electronic ordering,tests not performed and revised reports; the customer experience goals included service quality measures such as patient waitingservice center wait time, first call resolution and turn-around times. EmployeeQuantitative employee engagement goals included engagement survey and employee retention metrics. These were included because employee engagement levels are linked to our strategy to accelerate growth and drive operational excellence, and to our effort to deliver a superior customer experience. Employee engagement was assessedThe Company’s development of goals based on information derived from employee survey questionnaires.
For 2020, the Committee determined that eachresults of Mr. Davis and Ms. Eglinton Manner should have, in additionits ESG materiality assessment was included to financial and non-financial business objectives applicable to the other named executive officers, a business specific individual performance metric, based on their individual responsibilities, having a 20% weight. The Committee determined that after the end of 2020, it would determine the business specific individual performance for each of Mr. Davis and Ms. Eglinton Manner based on an individualized assessment of the person’s 2020 performance, considering factors determined appropriate by the Committee. Each of the named executive officers had the same goals, excluding the business specific individual performance metrics included for Mr. Davis and Ms. Eglinton Manner.
The 2020 annual cash incentive payouts for Mr. Davis and Ms. Eglinton Manner were based in part on the Committee’s individualized assessment of his or her business specific individual performance. In assessing the business specific individual performance of Mr. Davis, the Committee evaluated a number of factors, including Company revenue growth, savings from the Company’s Invigorate program, and Mr. Davis’ individual performance. In assessing the business specific individual performance of Ms. Eglinton Manner, the Committee evaluated a number of factors, including revenue growth from one or more acquired businesses, the performance of areasfoster continued alignment of the Company’s executive compensation with its business for which Ms. Eglinton Manner has responsibility, and Ms. Eglinton Manner’s individual performance.ESG strategies.
For 2020, the Committee determined performance on the employee engagement goal based on the Committee’s assessment of scores on engagement surveys, including as compared to 2019 survey results and benchmark data. This assessment was performed because of changes in the Company’s employee survey methodology in 2020 versus the prior year (including more frequent surveys in 2020). The Committee determined that performance on the employee engagement goal slightly exceeded the comparative benchmark. However, for the reasons set forth in the next paragraph, the Committee capped the weighted payout factor for employee engagement at target, or 10 points.
For 2020, the Committee also determined that, unless the Company achieved at least 90% attainment level on the two revenue metrics, the weighted payout factor for the non-financial metrics (medical quality/customer experience and employee engagement) would be limited to 20 points. The Company did not achieve 90% attainment level on the acquired revenue metric. Accordingly, the Committee capped the weighted payout factor for employee engagement at 10 points.
COVID-19 Response Plan
After the Committee had established goals and metrics for the SMIP for 2020, the COVID-19 pandemic unfolded. The Company found the performance of its base business deteriorated significantly and rapidly, and that simultaneously it was challenged to satisfy unprecedented demand for COVID-19 testing for the nation by innovating and ramping up capacity for COVID-19 testing. Management and the Board swiftly developed and implemented plans to address these twin challenges. The Company undertook a widely-communicated program of shared sacrifice, where all employees pitched in (salary reductions for exempt employees, with greater reductions for more senior employees – including the CEO and our other named executive officers; hours reductions for non-exempt employees; furloughs for certain employees) for a temporary period to enable the Company to get through the difficulty. As discussed under the heading “Director Compensation” beginning on page 18, the Board also contributed to the shared sacrifice, foregoing a portion of its retainer for a temporary period. At the same time, our employees stretched themselves to enable the Company to provide the needed COVID-19 testing.
As the foregoing program was being developed and implemented, the Committee considered the impact of the COVID-19 pandemic on the Company’s operations and the important role the Company is playinghas played in responding to the
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COVID-19 pandemic. The Committee concluded that responding to the COVID-19 pandemic was an integral part of the Company’s business plan and strategy for 2020.2022. Consistent with the Committee’s historic approach of basing annual incentive compensation on key operating goals and in furtherance of our executive compensation philosophy, on June 19, 2020, the Committee determined it was in the best interests of the Company and stockholders to addcontinue to include a supplemental bonus opportunityCOVID-19 response goal in the annual incentive plan for all employees participating2022, but to reduce the assigned weighting to 10% (from 20% in 2021). Due to anticipated volatility in the Company’s Annual Incentive Plan,2022 COVID-19 testing revenues, the Committee determined that the COVID-19 response goal would be based on both financial and all executive officers undernon-financial performance indicators, be aligned with the SMIP, for 2020 (the “COVID-19 Response Plan”), toCompany’s COVID-19 operating plan and the Company’s business strategy, and that performance would be determined following the performance period atbased on the Committee’s discretion based uponassessment. The COVID-19 response goal included an assessment of additional 2020 performance goals. The Company promptly reported the Committee’s adoption of the COVID-19 Response Plan on a Current Report on Form 8-K filed with the Securities and Exchange Commission.
Consistent with the Committee’s historical approach, the COVID-19 Response Plan incorporated both financial and non-financial performance indicators based on the Company’s COVID-19 operating plan and aligned with the Company’s business strategy. These additional performance indicators, including assessments of agility, business operations and innovation and financial condition,multiple factors related to the Company’s response to the COVID-19 pandemic in 2022, including: COVID-19 revenues; COVID-19 testing capacity, volumes, and turn-around time; COVID-19 testing innovation; leadership (including partnership with federal, state and local interests); and workforce management effectiveness. This approach was consistent with the Committee’s approach to the COVID-19 response plan. The additional performance indicators are highlightedgoal in the following table.2021 and 2020.
The Committee also determined that, in addition to the factors identified above, the | |
Each year, annual incentive compensation for our employees, including our CEO and our other namedof each executive officers, isofficer was subject to a potential modification of up to 20% (positive or negative) of her or his annual incentive payout based on base salary actually paid toher or his individual performance (including the employee. We did not change this approach for 2020, notwithstanding the salary and wage reductions that our employees experienced. Thus, 2020 annual incentive compensation for all our employees, including our CEO and our other named executive officers, was determined and paid on the basis of their compensation as reduced by the temporary salary and wage reductions described above.
In determining whether to award any payout for the COVID-19 Response Plan, the Committee assessed the Company’s performance of the performance indicators underportions of the COVID-19 Response Plan.business for which the person had responsibility). The Committee also assesseddetermined that after the work performed byend of 2022, it would determine for each executive officer whether the person’s individual performance should result in the modification of the named executive officers, including Mr. Rusckowski, in support of the COVID-19 Response Plan during 2020. After deliberation, the Committee approvedher or his annual incentive compensation under the COVID-19 Response Plan for all employees participating in the Company’s annual incentive plan. For our named executive officers participating in the SMIP, the Committee awarded each of Mr. Guinan and Ms. Eglinton Manner 15 points for the COVID-19 Response Plan and Mr. Davis 20 points for the COVID-19 Response Plan. The COVID-19 Response Plan award to each named executive officer reflected the Committee’s assessment of the COVID-19 Response Plan initiative and itspayout, based on an individualized assessment of the work performedperson’s 2022 performance, considering factors determined appropriate by each named executive officer in support of the COVID-19 Response Plan, including Mr. Davis’ leadership of the Company’s operations in responding to the COVID-19 pandemic. For Mr. Rusckowski, the Committee determined to award 25.4 points under the COVID-19 Response Plan to recognize his significant leadership in driving the Company’s COVID-19 response and his enhanced visibility and contributions in collaboration with the highest levels of government to mitigate the nationwide impact of the COVID-19 pandemic. The aggregate awards to our named executive officers, including Mr. Rusckowski, under the COVID-19 Response Plan were a very small percentage of the total COVID-19 Response Plan awards.Committee.
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| 2023 Proxy Statement | 34 |
The Committee further determined that, unless the Company achieved attainment of its base revenue growth target at a level exceeding 90% of target payout, payout on the medical quality/customer experience/employee engagement/ESG strategy goal would be capped at 125%. The Company achieved payout of the base business revenue goal exceeding 90%.
Mr. Plewman had the same goals as the other named executive officers (discussed above) for the period after his promotion to Senior Vice President, Diagnostic Services. Based on the date of his promotion, these goals were applied to 67% of 2022. For the period in 2022 prior to his promotion to the executive officer position, Mr. Plewman had goals based on the 2022 performance of the Company’s regional business for which he was the general manager; these goals were applied to 33% of 2022.
Annual Incentive Compensation Determinations for 2022
After the conclusion of 2022, and following deliberation on each of the items below, the Committee determined annual incentive compensation for 2022.
The following charttable shows the financial goals, the relative weight allocated to each, goal, results and resulting payout factors for 20202022.
| Weight (%) | Measure/Objective | Threshold ($) | Target ($) | Max ($) | Results ($) | Weighted Payout Factor % | ||||||
| 40 | Adjusted diluted EPS | 8.70 | 9.25 | 10.18 | 9.95 | 70 | ||||||
| 35 | Base business revenue attainment | 8,310MM | 8,480MM | 8,650MM | 8,429MM | 27 |
In determining the annual incentive payment to Mr. Plewman, the Committee considered the goals described above regarding the performance of the regional business for which he was responsible prior to his promotion, and prorated the payment in the manner described above. The regional business for which Mr. Plewman had management responsibility prior to his promotion achieved a weighted payout factor of 154.3.
The Committee made the following determinations regarding other goals.
| ● | Non-financial goal. Performance in respect of the medical quality, customer experience, and employee engagement goals was 114% of target. The Committee assessed the Company’s progress developing ESG goals in response to the Company’s materiality assessment, and based on management’s review of goals with the Board in 2022, concluded that performance was achieved consistent with the performance on the medical quality, customer experience, and employee engagement goals. The weighted payout factor on the goal for medical quality/customer experience/employee engagement/ESG goal development was 17.1. | |
| ● | COVID-19 response goal. After assessing performance in respect of the COVID-19 response goal, the Committee determined that performance was 100% of target, driven by: strong COVID-19 revenue; and strong COVID-19 operational performance, innovation and leadership. The weighted payout factor for this goal was 10. |
After assessing the performance of the named executive officers, the Committee determined that no modification of an annual incentive payout for 2022 based on individual performance was appropriate for any named executive officer except for Ms. Doherty, Mr. Prevoznik and Mr. Rusckowski. Based on its assessment, the Committee determined to apply a positive modifier of 5% to each of Ms. Doherty’s and Mr. Prevoznik’s incentive payouts, and a positive modifier of 20% to Mr. Rusckowski’s incentive payout. In assessing the individual performance of Ms. Doherty, the Committee evaluated a number of factors, including the performance of the areas of the Company’s business for which Ms. Doherty assumed responsibility for during 2022, the performance of the areas of the Company’s business for which Ms. Doherty relinquished responsibility during 2022, and her performance in connection with the extensive management transition during 2022. In assessing the individual performance of Mr. Prevoznik, the Committee evaluated a number of factors, including the performance of the areas of the Company for which Mr. Prevoznik assumed responsibility during 2022 and his strong performance in connection with the extensive management transition during 2022. In assessing the individual performance of Mr. Rusckowski, the Committee evaluated a number of factors, including the overall performance of the Company during 2022, as well as his strong performance in connection with the extensive management transition during the year.
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The following table shows in one location the weighted payout factors for the goals and the total resulting payout factor for 2022 for all the named executive officers except Ms. Doherty, Mr. Prevoznik, Mr. Plewman and Mr. Rusckowski.
| Weight (%) | Measure/Objective | Weighted Payout Factor % | |
| 40 | Adjusted diluted EPS | 70.0 | |
| 35 | Base Business revenue attainment | 27.0 | |
| 15 | Medical quality/customer experience/employee engagement/ESG goals | 17.1 | |
| 10 | COVID-19 performance | 10.0 | |
| Total | 124.1 | ||
The total payout factor for Ms. Doherty and Mr. Prevoznik was 130.3 (reflecting the 5% modifier awarded based on the results of the Committee’s assessment of their individual performance). The total payout factor for Mr. Plewman was 132.6 (reflecting the pro ration of his goals and the strong performance of the regional business for which Mr. Plewman had responsibility early in 2022). The total payout factor for Mr. Rusckowski and Mr. Guinan.was 148.9 (reflecting the 20% modifier awarded based on the results of the Committee’s assessment of his individual performance).
| Weight (%) | Measure/Objective | Threshold | Target | Results | Weighted Payout Factor % | |||||||||||
| 40 | Adjusted diluted EPS | $ | 6.56 | $ | 6.70 | $ | 11.18 | 80 | ||||||||
| 20 | Revenue attainment: | $ | 7,687 MM | $ | 7,805MM | $ | 9,301 MM | 40 | ||||||||
| Non-acquired revenue | ||||||||||||||||
| 20 | Revenue attainment: | $ | 77 MM | $ | 155 MM | $ | 135.9 MM | 16.4 | ||||||||
| Acquired revenue | ||||||||||||||||
| 10 | Medical quality and customer experience | multiple | multiple | multiple | 8.8 | |||||||||||
| 10 | Employee engagement | N/A | N/A | See text | 10 | |||||||||||
| Weighted Payout Factor % | Mr. Rusckowski | Mr. Guinan |
| Preliminary Total | 155.2 | 155.2 |
| COVID-19 Response Plan | 25.4 | 15.0 |
| Total | 180.6 | 170.2 |
The following chart shows the goals, the relative weight allocated to each goal, results and resulting payout factors for 2020 for Mr. Davis.
| Weight (%) | Measure/Objective | Threshold | Target | Results | Weighted Payout Factor % | |||||||||||
| 30 | Adjusted diluted EPS | $ | 6.56 | $ | 6.70 | $ | 11.18 | 60 | ||||||||
| 15 | Revenue attainment: non-acquired revenue | $ | 7,687 MM | $ | 7,805MM | $ | 9,301 MM | 30 | ||||||||
| 15 | Revenue attainment: Acquired revenue | $ | 77 MM | $ | 155 MM | $ | 135.9 MM | 12.3 | ||||||||
| 20 | Individual business specific | — | — | See text | 35.4 | |||||||||||
| 10 | Medical quality and customer experience | multiple | multiple | multiple | 8.8 | |||||||||||
| 10 | Employee engagement | N/A | N/A | See text | 10 | |||||||||||
| Preliminary Total | 156.5 | |||||||||||||||
| COVID-19 Response Plan | 20 | |||||||||||||||
| Total | 176.5 | |||||||||||||||
The following chart shows the goals, the relative weight allocated to each goal, results and resulting payout factors for 2020 for Ms. Eglinton Manner.
| Weight (%) | Measure/Objective | Threshold | Target | Results | Weighted Payout Factor % | |||||||||||
| 30 | Adjusted diluted EPS | $ | 6.56 | $ | 6.70 | $ | 11.18 | 60 | ||||||||
| 15 | Revenue attainment: existing portfolio | $ | 7,687 MM | $ 7,805 MM | $ | 9,301 MM | 30 | |||||||||
| 15 | Revenue attainment: Acquired revenue | $ | 77 MM | $ 155 MM | $ | 135.9 MM | 12.3 | |||||||||
| 20 | Individual business specific | — | — | See text | 20 | |||||||||||
| 10 | Medical quality and customer experience | multiple | multiple | multiple | 8.8 | |||||||||||
| 10 | Employee engagement | N/A | N/A | See text | 10 | |||||||||||
| Preliminary Total | 141.1 | |||||||||||||||
| COVID-19 Response Plan | 15 | |||||||||||||||
| Total | 156.1 | |||||||||||||||
From time to time, the Committee makes adjustments to the Company’s financial results based on objective criteria for purposes of calculating performance under the SMIP. Set forth in the following table are items, identified by the
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Committee, for which it may make adjustments. As a matter of policy, the Committee seeks to apply these principles consistently from year to year.
| Quest Diagnostics Policy: Items for Which the Committee May Make Adjustments | ||
• Gains and losses from the sale of a business • Charges related to the impairment of goodwill or intangible assets • Charges related to reorganization and restructuring programs • Charges related to the acquisition or integration of a company or business | • Material legal settlements • Cumulative or one-time effect from accounting changes • Effects of changes in tax laws or the rate on deferred tax assets and liabilities • Items included in or excluded from ordinary income (including significant unusual or infrequently occurring items) or described in Management’s Discussion and Analysis of Financial Performance included in the Company’s Annual Report on Form 10-K | |
The Committee may make adjustments based on these items because:
| • | These items may be outside the control of participants and could create “windfall” benefits or undue penalties (for example, changes in tax laws or accounting standards); and | |
| • | Impact from these items could distract management from focusing on operating performance by penalizing participants for taking actions in the long-term interest of the Company and its stockholders (for example, a restructuring of operations) that might in the short term negatively impact a performance measure. |
In accordance with this policy, the Committee made the adjustments set forth in the table below to the Company’s resultsdiluted EPS for fiscal year 20202022 for purposes of calculating performance under the SMIP.
Items Adjusted for in 20202022 Annual Incentive Calculations
| Diluted EPS ($) | ||
| Diluted EPS, as reported | $ | |
| Restructuring and integration charges | 0.56 | |
| Gains and losses on investments | 0.26 | |
| Quest for Health Equity costs | 0.59 | |
| Amortization expense | ||
| Excess tax | (0.12) | |
| Other | (0.05) | |
| Total adjustments | $1.98 | |
| Adjusted | $ |
| 2023 Proxy Statement | 36 |
The adjustments made by the Committee are the same as those disclosed when reporting our 20202022 financial performance.
For 2020,2022, the target incentives and payouts for the named executive officers (other than Mr. Mendez) are summarized in the following table. Under the SMIP, annual incentive compensation payments generally are calculated based on salary actually paid and accordingly reflect changes in 2020, reflectedsalary rate during the salary reductions discussed above.year.
| 2020 Target Incentive as a % of Salary | 2020 Actual Payment as a % of Target | 2020 Actual Payment as a % of Salary | 2020 Actual Payment ($) | |||||
| Mr. Rusckowski | 150 | 180.6 | 270.8 | 3,000,000 | ||||
| Mr. Guinan | 90 | 170.2 | 153.2 | 905,833 | ||||
| Mr. Davis | 80 | 176.5 | 141.2 | 815,050 | ||||
| Ms. Eglinton Manner | 80 | 156.1 | 124.9 | 707,493 |
| 2022 Target Incentive as a % of Salary(a) | 2022 Actual Payment as a % of Target | 2022 Actual Payment as a % of Salary | 2022 Actual Payment ($) | |||||
| James E. Davis (b) | (b) | 124.1 | 134.4 | 1,082,853 | ||||
| Sam A. Samad (c) | 90 | 124.1 | 111.6 | 725,693 | ||||
| Catherine T. Doherty | 75 | 130.3 | 97.7 | 580,500 | ||||
| Michael E. Prevoznik | 70 | 130.3 | 91.2 | 487,796 | ||||
| Patrick Plewman (d) | 70 | 132.6 | 86.2 | 441,276 | ||||
| Former Executive Officers | ||||||||
| Stephen H. Rusckowski | 150 | 148.9 | 223.4 | 2,856,686 | ||||
| Mark J. Guinan | 90 | 124.1 | 111.6 | 444,862 | ||||
| Carrie Eglinton Manner (e) | 80 | - | - | - |
| (a) | The incentive targets for Ms. Doherty, Mr. Prevoznik, Mr. Rusckowski, Mr. Guinan and Ms. Eglinton Manner were established in February 2022. The incentive target for Mr. Samad was established when he joined the Company. |
| (b) | |
| (c) | To induce Mr. Samad to join the Company, the Company agreed that his annual incentive compensation for 2022 would be paid based on his annualized base salary, rather than his salary actually received. |
| (d) | The incentive target for Mr. Plewman shown was established when he was promoted in 2022 to his current position; his incentive target for the period prior to his promotion was lower than that shown. Mr. Plewman’s annual incentive compensation for 2022 was prorated accordingly. |
| (e) | Ms. Eglinton Manner terminated employment with the Company in 2022 and was not entitled to receive annual incentive compensation for 2022. |
Had the Committee not made the adjustments to the Company’s financial results discussed, above, the payouts set forth in the preceding table would not have changed (unadjusted diluted earnings per share results exceeded maximum).been:
| 2022 Payment as a % of Target | 2022 Payment as a % of Salary | 2022 Payment ($) | ||||
| James E. Davis | 54.1 | 58.6 | 471,811 | |||
| Sam A. Samad | 54.1 | 48.6 | 316,193 | |||
| Catherine T. Doherty | 56.8 | 42.6 | 252,931 | |||
| Michael E. Prevoznik | 56.8 | 39.7 | 212,538 | |||
| Patrick Plewman | 74.9 | 48.7 | 249,344 | |||
| Former Executive Officers | ||||||
| Stephen H. Rusckowski | 64.9 | 97.3 | 1,244,189 | |||
| Mark J. Guinan | 54.1 | 48.6 | 398,462 | |||
| Carrie Eglinton Manner | - | - | - |
| 37 | 2023 Proxy Statement |
20202022 Conclusion
The awards discussed above were the only payments that the Committee approved in respect of 2020 under the SMIP. Early in 2020, the Committee had authorized a supplemental bonus opportunity for the named executive officers; at year end, the Committee did not utilize it. Overall, the Committee believes that the annual incentive payments made to our named executive officers for 20202022 were consistent with the objectives of our executive compensation program.
| Long-Term Incentive Awards |
Introduction
We design our long-term incentive awards to:
| • | Align management’s compensation opportunities with the interests of our stockholders; | |
| • | Provide long-term compensation opportunities consistent with market practice; | |
| • | Incent and reward long-term value | |
| • | Incent management retention. | |
To achieve these objectives, for 2020, in February 2020 the Committee revised the mix of equity awards for our executive officers, with the CEO awards updated to emphasize further awards subject to performance conditions. In addition, the Committee updated the 2020 performance share awards to include a performance measure focused on relative TSR, measured relative to companies included in the S&P 500 Healthcare Index. The performance measures for the 2020 performance share awards, and the relative weighting of the metrics, are: the compound annual growth rate (“CAGR”) of the Company’s revenue (50% weight), average return on invested capital (“ROIC”) (30% weight), and relative TSR (20% weight). The revised equitywe award mix is set forth in the following chart, which shows the long-term incentives we awarded to our named executive officers annually in 2020 (for information on 2021 long-term incentivethe form of equity awards. The following table shows the awards see “Changes to Compensationthat we issued in 2021” on page 41):2022; in prior years, characteristics of the award (e.g., relative component mix, vesting) may have been different:
| Component | CEO Weight (% of Award Value) | All Other Executive Officers Weight (% of Award Value) | Time Horizon for Value Creation | Vesting | Purpose | |||||
| Performance Shares | 50 | 40 | 3 years | Performance-based 3-year cliff vesting | • Align executives with stockholders • Provide strong links with strategy and operating metrics • Performance-based vesting | |||||
| RSUs | 25 | 30 | 3 years | In 1/3rd increments annually over 3 years | • Align executives with stockholders • Provide retention incentives • Provide incentives to preserve stock value • Balance long-term incentive package | |||||
| Stock Options | 25 | 30 | 10 years | In 1/3rd increments annually over 3 years | • Align executives with stockholders • Highlight stock price appreciation as a key indicator of success |
| Component | Weight (% of Award Value) | Time Horizon for Value Creation | Vesting | Purpose | |
| Performance Shares | 50 | 3 years | Performance-based 3-year cliff vesting | • Align executives with stockholders • Provide strong links with strategy and operating metrics • Performance-based vesting | |
| RSUs | 25 | 3 years | In 1/3rd increments annually over 3 years | • Align executives with stockholders • Provide retention incentives • Provide incentives to preserve stock value • Balance long-term incentive package | |
| Stock Options | 25 | 10 years | In 1/3rd increments annually over 3 years | • Align executives with stockholders • Highlight stock price appreciation as a key indicator of success |
The time horizons shown operate in conjunction with, and in addition to, our stock ownership and retention requirements. Before 2020, the mix for all of our executive officers consisted of 40% performance shares, 40% stock options and 20% RSUs.
In determining the value of the long-term incentive component of each named executive officer’s compensation, the Committee considers, among other factors:
| • | The value of similar incentive awards to executive officers in the peer group; | |
| • | The executive’s scope of responsibility and experience, as well as market opportunities that may be available to the executive; and |
| | The performance of the Company and the executive, and the executive’s contribution to meeting the Company’s objectives. |
The Committee is responsible in its use of equity as long-term incentive compensation and regularly monitors the use of equity compensation for executives and the Company as a whole from a competitive standpoint. The Committee believes that our equity awards, which in 2020 emphasized performance shares for our most senior employees, including all of ournamed executive officers, reflect a focus on pay for performance and competitive considerations in support of our business strategy. The program also fosters the ownership culture that the Committee seeks to encourage among our employees, including our senior management.employees.
Timing of Equity Awards; Awards Committee
It has been the Committee’s practice to make annual equity grants at a meeting held shortly after we announce our prior year’s earnings. It also has been the Committee’s practice to make equity grants to new hires and promoted employees, and other grants in special cases, from time to time as appropriate.
| 2023 Proxy Statement | 38 |
The Awards Committee, created by the Board, consists of one director and has authority to grant certain equity awards under the Employee Plan and to make corrections to awards approved by the Compensation and Leadership Development Committee, to the extent the Awards Committee determines that corrections are necessary or appropriate to carry out the Compensation and Leadership Development Committee’s intentions. At this time, the Awards Committee consists of Mr. Rusckowski.James E. Davis.
The Awards Committee is authorized to grant the full range of awards that can be issued under the Employee Plan. There are, however, significant limits on awards that the Awards Committee may grant. These include: (i) a prohibition on awards to executive officers; (ii) a prohibition on awards to any individual whose base salary exceeds a threshold amount; (iii) an annual limit on awards granted to any individual; and (iv) an annual limit on aggregate awards granted. It is expected that the Awards Committee will approve awards from time to time as it determines appropriate, and that the awards will be issued for, among other purposes, new hires, promoted employees, employee retention and special recognition awards, including for high-performing employees who generally are not eligible for annual equity awards. The Awards Committee regularly reports to the Compensation and Leadership Development Committee awards granted by, and corrections made by, the Awards Committee. In 2020, 18,1262022, 3,589 stock options, 1,5211,130 performance shares, and 9,02424,871 RSUs were granted by the Awards Committee.
Approach to Performance Share Awards
For each year since 2005, the Committee has included an annual grant of performance shares in the long-term incentive awards to certain of our employees, including our executive officers. Performance shares encourage a long-term view and reinforce the link between financial results and rewards. Our performance shares have been generally based on a single three-year performance period and reward financial and operational performance during that period. The value that they provide depends on the level of achievement of predefined performance goals over the multi-year performance period. If minimum performance levels are not achieved, the performance shares are forfeited and provide no value. New performance share awards are made each year, and accordingly, participating named executive officers will participate in up to three overlapping performance periods during each year.
For each performance share award, the Committee establishes base yearbase-year performance levels, target performance levels and the measurement period. When the Committee is determining the payout under the performance measure, it may adjust items in the Company’s operating results and base yearbase-year performance levels using objective criteria (generally under the same categories identified above in the discussion of annual incentive compensation, and for the same reasons). No performance shares will be earned if a specified minimum performance level is not achieved. For performance above the threshold level, payment will vary with actual performance achieved, up to a maximum payment of 2 times the target level. Determination of the shares payable pursuant to each award is made after the end of the performance period.
The Committee’s approach to performance share awardsshares has been to establish targets that are challenging, yet attainable, and to provide that a maximum payout of 200% of target requires extraordinary performance. The following table sets forthCommittee adopted the aggregateuse of average return on invested capital (“ROIC”) and revenue compound annual growth rate (“CAGR”) as performance share award payouts over the past five years,metrics in 2012 and has continued to use these metrics, with relative TSR added as compared to target, for the named executive officers thena metric in office.
| |
| Performance Period | Year Paid | Performance Share Payout as Compared to Target (%) | ||
| 2014 – 16 | 2017 | 93 | ||
| 2015 – 17 | 2018 | 111 | ||
| 2016 – 18 | 2019 | 85 | ||
| 2017 – 19 | 2020 | 80 | ||
| 2018 – 20 | 2021 | 195 |
The Committee believes that these results demonstrate the rigor of the targets adopted, that targets have been set at reasonable levels and that performance share award payouts have been sensitive to Company performance.
Determination of February 2017 Performance Share Awards
In February 2020, the Committee determined payment for performance share awards made in February 2017. At the time of grant, the Committee established base year performance levels, performance measures, target performance levels and the measurement period. The performance measures were the Company’s revenue CAGR (50% weight) and the Company’s average ROIC (50% weight) during the performance period (calculated in accordance with the plan, subject to adjustment as discussed above). The measurement period was January 1, 2017 to December 31, 2019.
The following table shows the targeted performance levels (awards for performance between these percentiles are interpolated on a straight-line basis).
| Performance Shares Earned (as multiple of target number of shares) | Adjusted Revenue CAGR (%) | Average Adjusted ROIC (%) | ||
| 0.25 | 1.0% | N/A | ||
| 0.5 | N/A | 8.7 | ||
| 0.75 | 2.0 | N/A | ||
| 1.0 | 3.0 | 9.2 | ||
| 2.0 | 5.0 | 9.7 |
The following table shows the actual performance levels for each of the performance measures during the measurement period, as determined by the Committee. As a result of these performance levels, the number of performance shares earned during the performance period was 80.1% of target.
| Results (%) | Weighted Payout Factor (%) | |||
| Adjusted Revenue CAGR | 2.89 | 48.6 | ||
| Average Adjusted ROIC | 8.83 | 31.5 |
The following table shows the 2017 performance shares actually earned by each of the named executive officers other than Mr. Mendez (Mr. Mendez had not received a 2017 performance share award).
The table below reconciles revenues used for calculating the Company’s adjusted revenue CAGR for purposes of the performance share awards with reported revenues for both 2016, which was the baseline year, and 2019. Revenues for incentive purposes were calculated, in accordance with Quest Diagnostics policy, (i) to remove from base year revenues any amounts associated with businesses that were divested or wound-down during the performance period so as to reflect the underlying operating performance, (ii) to reflect accounting changes due to adoption of a new accounting
| |
standard related to revenue recognition, and (iii) to reflect the impact of the enactment of the Protecting Access to Medicare Act (“PAMA”).
| 2016 Baseline Revenues ($) MM | 2019 Revenues ($) MM | |||||||
| Net revenues, as adjusted1 | 7,515 | 7,726 | ||||||
| Focus Products revenues2 | (26) | - | ||||||
| Revenue accounting change3 | - | 335 | ||||||
| PAMA adjustment4 | - | 95 | ||||||
| Total adjustments | (26) | 430 | ||||||
| Net revenues per award agreement/for incentive | ||||||||
| purposes | 7,489 | 8,156 | ||||||
2020. ROIC is defined for purposes of performance share awardsshares as (i) net operating profit after tax (“NOPAT”) divided by (ii) the sum of average total debt and stockholders’ equity (Invested Capital). The table below shows the Company’s adjusted ROIC results for each of the three years during the performance period.
| 2017 | 2018 | 2019 | 3 Year Average | ||||||
| ROIC % | 9.49 | 8.46 | 8.54 | 8.83 |
In accordance with the Company’s policy, in determining the Company’s ROIC for purposes of performance share awards, NOPAT (i.e., net income attributableaddition to the Company excluding interest expense) for each year in the performance period was adjusted to reflect the same adjustments used to calculate net income for purposes of the annual incentive plan for the relevant year. Additionally, adjustments were made to remove the effects of significant transactions not contemplated or completed at the time performance measures were set, as follows: NOPAT was reduced and invested capital was adjusted to remove the benefit associated with the enactment of the Tax Cuts and Jobs Act of 2017 (“TCJA”); and Invested Capital was adjusted to eliminate the impact of the 2019 refinancing of the Company’s Senior Notes due January 2020 and Senior Notes due March 2020. The Committee made these adjustments based on the same pre-determined objective criteria, and for the same reasons, as described above in connection with the SMIP.
The adjustments made by the Committee had the effect of increasing the revenue CAGR and decreasing ROIC for the performance period. The following table shows the performance levels for each of the performance measures during the period had the adjustments described above not been made.
| Results (%) | Weighted Payout Factor (%) | ||||
| Adjusted Revenue CAGR | 1.04 | 13.6 | |||
| Average Adjusted ROIC (%) | 9.93 | 100 |
As a result of these performance levels, the number of performance shares earned during the performance period would have been 113.6% of target, and the shares earned by each executive officer would have been as set forth in the following table.
| |
2020 Equity Awards
In February 2020, the Committee awarded long-term compensation for 2020 to the named executive officers, resulting in the equity awards shown for them in the “2020 Summary Compensation Table” and the “2020 Grants of Plan-Based Awards Table” beginning on pages 43 and 46, respectively. The Committee increased the CEO’s long-term incentive by approximately 32%, and three of our other named executive officers received target value increases ranging from approximately 2% to approximately 14%. In considering the size of the award for each of these named executive officers, the Committee considered the factors described above. Over the prior four years, the Committee had provided only inflationary increases for the CEO’s long-term incentive awards, which had not kept pace with peer group median levels over time.
For 2020, the Committee granted the awards shown in the chart on page 36 to our CEO and other named executive officers. The Committee also approved awards: (i) to our other more senior equity award recipients, consisting of the same mix of awards as those receivedbeing well supported by our namedstockholders, the use of ROIC holds management accountable for efficient use of capital and further links executive officers other than our CEO; and (ii)compensation to less senior participants in the program, consisting solely of stock options and RSUs.
We continued to use stock options as a component of our equity awards because they align incentives with stockholder interests by rewarding appreciation in stock price. We believe that stock options are an appropriate incentive to motivate our employees. We also continued to use RSUs as a component of our equity awards because they provide retention incentives under diverse scenarios. RSUs also foster an ownership culture, help motivate employees to perform across business cycles and are aligned with stockholder value creation.
The performance measures for the 2020 performance share awards are: revenue CAGR (50% weight), average ROIC (30% weight) and Relative TSR (20% weight), which support key tenets of our 2-point strategy. The target performance shares subject to the 2020 performance share awards will be earned over a single three-year period ending December 31, 2022 and will be paid out in shares of the Company’s common stock after the end of the performance period to the extent that the performance level is achieved. Determination of the shares payable pursuant to the 2020 performance share award will be made after the end of the performance period.
|
Since 2012, when we began issuing performance share awardsshares with performance metrics based on the Company’s average ROIC and on the revenue CAGR, over the performance period, it has been the Company’s practice to disclose the performance targets for these measures at the conclusion of the performance period, but not at the inception of the performance period. We believe that disclosure of average ROIC and revenue CAGR performance targets at the inception of a single three-year performance cycle could work to our competitive disadvantage. Our targets are linked to our budget and to forecasts and projections that we, like other companies with which we compete, do not routinely disclose publicly or disclose only in general terms. If we were to disclose these targets, our competitors would gain an informational advantage that could enable competitors to anticipate our strategies and take steps to counter them. In this regard, we note that these performance metrics — average ROIC and revenue CAGR — are absolute, not relative to performance of other companies, and different from other measures that may not be as competitively sensitive. Thus, the Company currently believes that it is in the best interest of its stockholders to continue its practice of disclosing the performance targets relating to average ROIC and revenue CAGR at the conclusion of the performance period, but not at the inception of the performance period.
| |
The Company believes that its performance metric based on cumulative COVID-19 revenues has characteristics similar to the performance metrics based on average ROIC and revenue CAGR and thus, it will disclose the performance target for this metric only at the conclusion of the performance period. We believe that these concerns do not apply at this time to our relative TSR
| 39 | 2023 Proxy Statement |
performance metric. Accordingly, we are disclosing here, beforedisclose in our annual proxy statement, in the conclusionyear of the three-year performance cycle,grant, the relative TSR performance metric for our 2020 performance share awards.
The following table sets forth the aggregate performance share payouts over the past five years, as compared to target, for the named executive officers then in office. For additional information, Annex B sets forth the payments as compared to target for performance shares for each year since 2005.
2021 Actions
| Performance Period | Year Paid | Performance Share Payout as Compared to Target (%) | ||
| 2016 – 18 | 2019 | 85 | ||
| 2017 – 19 | 2020 | 80 | ||
| 2018 – 20 | 2021 | 195 | ||
| 2019 – 21 | 2022 | 200 | ||
| 2020 – 22 | 2023 | 196 |
The Committee believes that these results demonstrate that performance share payouts have been sensitive to Company performance.
Determination of February 20182019 Performance Share Payment Determination. Shares
In February 2021,2022, the Committee determined payment for performance share awards madeshares awarded in February 2018. The2019. At the time of grant, the Committee established base year performance period for those awards ended on December 31, 2020.levels, performance measures, target performance levels and the measurement period. The performance measures were the Company’s revenue CAGR (50% weight) and the Company’s average ROIC (50% weight) during the performance period (calculated in accordance with the plan, subject to adjustment as discussed above). The measurement period was January 1, 2019 to December 31, 2021.
The following table shows the targeted performance levels (awards for performance between these percentiles are interpolated on a straight-line basis).
| Performance Shares Earned (as multiple of target number of shares) | Revenue CAGR (%) | Average Adjusted ROIC (%) | ||
| 0.25 | 1.5 | N/A | ||
| 0.5 | N/A | 9.7 | ||
| 0.75 | 2.0 | N/A | ||
| 1.00 | 3.0 | 10.4 | ||
| 2.00 | 5.0 | 10.8 |
The following table shows the actual performance levels for each of the performance measures during the measurement period, as determined by the Committee. As a result of these performance levels, the number of performance shares earned during the performance period was 200% of target.
| Results (%) | Weighted Payout Factor (%) | ||
| Revenue CAGR | 12.7 | 100 | |
| Average Adjusted ROIC | 14.4 | 100 |
The following table shows the 2019 performance shares actually earned by each of the named executive officers.
| 2019 Performance Shares Earned | |||
| James E. Davis | 19,856 | ||
| Sam A. Samad (a) | N/A | ||
| Catherine T. Doherty | 13,392 | ||
| Michael E. Prevoznik | 11,544 | ||
| Patrick Plewman | 3,510 | ||
| Former Executive Officers | |||
| Stephen H. Rusckowski | 70,184 | ||
| Mark J. Guinan | 20,780 | ||
| Carrie Eglinton Manner | 16,162 | ||
| 2023 Proxy Statement | 40 |
| (a) | Mr. Samad did not receive a grant of 2019 performance shares; he was not a Company employee at the time of grant. |
The table below shows the Company’s adjusted ROIC results for each of the three years during the performance period.
| 2019 | 2020 | 2021 | 3 Year Average | |||||
| ROIC % | 10.1 | 15.3 | 17.7 | 14.4 |
In accordance with the Company’s policy, in determining the Company’s ROIC for purposes of performance shares, NOPAT (i.e., net income attributable to the Company excluding interest expense) for each year in the performance period was adjusted to reflect the same adjustments used to calculate diluted EPS for purposes of the SMIP for the relevant year. Additionally, adjustments were made to remove the effects of significant transactions not contemplated or completed at the time performance measures were set, as follows: Invested Capital was adjusted to eliminate the impact of the 2019 refinancing of the Company’s Senior Notes due January 2020 and Senior Notes due March 2020. The Committee made these adjustments based on the same pre-determined objective criteria, and for the same reasons, as described above in connection with the SMIP.
The adjustments made by the Committee had the effect of increasing ROIC for the performance period. The following table shows the performance levels for each of the performance measures during the period had the adjustments described above not been made.
| Results (%) | Weighted Payout Factor (%) | ||
| Revenue CAGR | 12.7 | 100 | |
| Average Adjusted ROIC (%) | 14.0 | 100 |
As a result of these performance levels, the number of performance shares earned during the performance period would have been 200% of target, and the shares earned by each executive officer would have been the same as those actually earned.
2022 Equity Awards
In February 2022, the Committee awarded long-term compensation for 2022 to our Chief Executive Officer and the other named executive officers, resulting in the equity awards shown for them in the “2022 Summary Compensation Table” and the “2022 Grants of Plan-Based Awards Table” beginning on pages 45 and 47, respectively. The Committee revised the mix of equity awards for our executive officers other than our Chief Executive Officer, to emphasize further awards subject to performance conditions. The Committee determined that awards to our other executive officers, and to the remainder of our most senior employees, would consist of 50% performance shares, 25% options and 25% RSUs, mirroring the mix of awards to our Chief Executive Officer.
We continued to use stock options as a component of our equity awards because they align incentives with stockholder interests by rewarding appreciation in stock price. We believe that stock options are an appropriate incentive to motivate our employees. We also continued to use RSUs as a component of our equity awards because they provide retention incentives under diverse scenarios. RSUs also foster an ownership culture, help motivate employees to perform across business cycles and are aligned with stockholder value creation.
The Committee also approved awards: (i) to our other more senior equity award recipients, consisting of the same mix of awards as those received by our named executive officers; and (ii) to less senior participants in the program, consisting solely of stock options or RSUs. In addition, to increase the reach of the Company’s equity awards program and its benefits, and to enhance the competitiveness of the Company’s compensation program, the Committee expanded the pool of employees receiving equity awards to include director-level employees.
| 41 | 2023 Proxy Statement |
Due to the uncertain impact of the COVID-19 pandemic on the operating environment, the Committee continued to measure base business revenues and COVID-19 testing revenues separately for purposes of performance shares. The performance measures for the 2022 performance share awards, and the relative weighting of the metrics, are the same as used for the performance shares granted in 2021: the CAGR of the Company’s base business revenue (35% weight), average ROIC (30% weight), relative TSR (measured relative to the companies included in the S&P 500 Healthcare Index) (20% weight), and cumulative COVID-19 revenue (15% weight). These metrics support key tenets of our business strategy. The target performance shares subject to the 2022 performance share awards will be earned over a single three-year period ending December 31, 2024, and will be paid out in shares of the Company’s common stock after the end of the performance period to the extent that the performance level is achieved. Determination of the shares payable pursuant to the 2022 performance share awards will be made after the end of the performance period. The relative TSR performance metric for our 2022 performance shares is set forth in the following table.
| Relative TSR* | ||
| Greater Than or Equal to 75th Percentile | 2 x 20% x Target Performance Shares | |
| Equal to 50th Percentile | 1 x 20% x Target Performance Shares | |
| Equal to 25th Percentile | 0.5 x 20% x Target Performance Shares | |
| Less Than 25th Percentile | 0 x 20% x Target Performance Shares |
*The Earnings Multiple for Relative TSR between the percentiles designated in the above table will be interpolated.
Equity Awards for 2022 to Individual Named Executive Officers
As noted in the Executive Summary (see “2022 Compensation Actions,” beginning on page 28), 2022 was a year of significant change and transition in the management of our Company, and the Committee took numerous actions during 2022 to foster the success of that transition. In February 2022, the Committee approved equity awards for our named executive officers. The awards were consistent with the discussion above under the heading “2022 Equity Awards,” and reflected consideration of the factors noted above. Noteworthy aspects of awards to individual named executive officers are set forth below.
| ● | The award to Mr. Davis increased by approximately 117%, reflecting him becoming CEO-Elect; | |
| ● | The awards to Ms. Doherty, Mr. Prevoznik and Mr. Plewman increased by approximately 6%, 8% and 10%, respectively; | |
| ● | The award to Mr. Rusckowski increased by approximately 10%. | |
| ● | The award to Mr. Guinan was reduced by approximately 50%, reflecting his expected retirement during 2022. This award provided that vesting would accelerate upon his retirement, provided that he successfully transitioned the Chief Financial Officer responsibilities to his successor, as approved by the Chief Executive Officer. His vested 2017 option award received retirement treatment, providing up to a five-year exercise period. | |
| ● | In addition to her annual award, Ms. Eglinton Manner received a retention award having a value of $2.0 million. The retention award consisted of 50% RSUs and 50% performance shares, each cliff-vesting three years after the grant date. The performance shares had performance goals related to compound annual growth in revenues associated with the services offerings for which Ms. Eglinton Manner had management responsibility, other than revenues associated with (i) COVID-19 testing and (ii) business acquisitions completed subsequent to January 1, 2022. Ms. Eglinton Manner forfeited her annual award, and her retention award, when she terminated employment in 2022. |
In connection with the significant change and transition in the management of our Company during 2022, the Committee also approved the following additional awards to named executive officers in 2022. Except as noted below, these awards have generally the same terms and conditions as the annual awards issued to the named executive officers in February 2022.
| ● | An award having a grant date value of $5.0 million to Mr. Davis effective November 1, 2022, when he became Chief Executive Officer and President. This award consisted of 60% performance shares and 40% RSUs, and does not include a vesting-upon-retirement feature. The RSUs cliff vest on November 1, 2025. |
| 2023 Proxy Statement | 42 |
| ● | An annual award having a grant date value of $2.5 million to Mr. Samad when he joined the Company in July 2022. | |
| ● | An award in July 2022 of Make-Whole RSUs to Mr. Samad having a grant date value of $1.5 million, intended to compensate him for certain forfeitures incurred in connection with the termination of his employment from his immediately preceding employer and as a sign-on inducement. 50% of the Make-Whole RSUs are scheduled to vest on each of the first and second anniversaries of the grant date. | |
| ● | An award having a grant date value of $550,000 to Mr. Plewman in connection with his promotion to Senior Vice President, Diagnostic Services. |
| 2023 Actions |
February 2020 Performance Share Payment Determination. In February 2023, the Committee determined payment for performance shares awarded in February 2020. The performance period for those awards ended on December 31, 2022. The performance measures were the Company’s revenue CAGR (50% weight), the Company’s average ROIC (30% weight), and relative TSR (20% weight) (in each case the results associated with each metric were calculated in accordance with the plan, subject to adjustment based on objective criteria as discussed above and calculated in accordance with the plan)above). The Committee determined that the earnings multiple applicable to these awards during the performance period was 195%196% of target. Determination of these awards will be discussed in the Compensation Discussion and Analysis included in our 20222024 proxy statement.
Changes to Compensation in 20212023. TheIn February 2023, the Committee consideredadopted performance measures for the unusual challenges in setting financial goals for 2021 annual incentive compensation and 20212023 performance shares. Due to anticipated volatility in the Company’s COVID-19 testing revenues, the Committee determined to measure base business revenues and COVID-19 testing revenues separately for purposes of annual incentive compensation and the performance share awards. Further, the Committee determined to split 2021 annual incentive targets into two half-years; performance goals for the first half of 2021 were set in February 2021, and performance goals for the second half of 2021 will be set in mid-2021. The Committee anticipates that these changes in approach are temporary. The Committee did not change its process of setting target annual award levels and paying earned awards on an annual basis. The Committee also approved 2021 performance share awards including a performance measure focused on revenue related to our COVID-19 response. The performance measures for the 20212023 performance share awards,shares, and the relative weighting of the metrics, are: revenuethe CAGR onof the Company’s base business (35%revenues, including COVID-19 revenues (50% weight); COVID-19 testing revenues (15% weight);, average ROIC (30% weight);, and relative TSR (measured relative to the companies included in the S&P 500 Healthcare Index) (20% weight). In calculating the revenue CAGR, the Company will exclude COVID-19 revenues from the baseline year (2022) revenues.
| Other |
Benefits
All eligible employees, who satisfy certain service requirements, including the named executive officers, are entitled to participate in the tax-qualified 401(k) Plan. All employees whose base salary exceeds a required threshold level, including the named executive officers, are entitled to participate in the non-qualified Supplemental Deferred Compensation Plan (“SDCP”). In the 401(k) Plan, participants may defer a portion of their eligible cash compensation up to limits established by law. The purposes of the 401(k) Plan and the SDCP are to provide eligible employees an opportunity to save for their retirement and, through Company matching contributions and credits, to provide supplemental retirement income to help us compete in the market for talented employees. For additional information regarding the SDCP, see “2020“2022 Nonqualified Deferred Compensation Table” on page 50.53.
As part of his or her total compensation package, each named executive officer is eligible to participate in our broad-based employee benefit plans, such as medical, dental, group life insurance and disability plans and the Employee Stock Purchase Plan. Each of these benefits is provided on the same basis as available to other exempt employees. Our benefits are designed to attract and retain talented employees and to provide them with competitive benefits.
| |
Perquisites
Perquisites represent a minor component of executive compensation. We provide perquisites that we believe are reasonable and competitive. The Company has a security plan approved by the Committee forIn 2022, Mr. Rusckowski.Davis and Mr. Rusckowski and his family usetheir families used Company aircraft for personal travel. Pursuant to an Aircraft Timesharing Agreementaircraft timesharing agreements approved by the Committee, each of Mr. Davis and Mr. Rusckowski must reimburse the Company for its aggregate incremental cost arising out of Mr. Rusckowski’s personal use of Company aircraft after the aggregate incremental cost to the Company of Mr. Rusckowski’s personal use exceeds $100,000a threshold amount in a year. Pursuant to his employment agreement,During 2022, the Company also reimbursed Mr. Davis and Mr. Rusckowski for driver and vehicle costs. In 2020, Mr. Mendez received taxNamed executive officers also are eligible for executive health physical exams and financial planning services and relocation benefits; the Company was reimbursedservices. Named executive officers required to relocate upon hire or due to a change in work location are eligible for his relocation benefits. These perquisitesPerquisites provided are disclosed in the “2020“2022 Summary Compensation Table” beginning on page 43.45.
| 43 | 2023 Proxy Statement |
Severance
The Company’s Executive Officer Severance Plan (“Severance Plan”) covers the named executive officers. No named executive officer will receive any severance benefits solely as a result of a change in control. For additional information, see “2020“2022 Potential Payments upon Termination or Change in Control” beginning on page 51.54. We believe that the severance benefits provided to our named executive officers are consistent with market practice and are appropriate recruiting and retention tools. The named executive officers have agreed to non-competition and non-solicitation covenants for a period following termination of employment.
Risk Assessment
In August 2020,2022, the Committee reviewed the compensation arrangements for the Company’s employees, including the Company’s executive officers, to assess whether the arrangements, individually or in combination, encourage risk taking that is reasonably likely to have a material adverse effect on the Company. In assessing the risk, the Committee considered plan designs, plan operation, plan controls, oversight and review, and competitive norms. In assessing the risk of plans that apply to our executive officers, the Committee also considered the risk guidelines suggested by the Center on Executive Compensation. The Committee concluded that the compensation arrangements for the Company’s employees, including the arrangements for the Company’s executive officers, do not encourage risk taking that is reasonably likely to have a material adverse effect on the Company. Factors supporting this conclusion include the following: (i) by utilizing a variety of performance metrics in our incentive programs, we discourage excessive risk taking by removing the incentive to focus on a single performance goal to the detriment of the Company’s overall performance; (ii) under both the SMIP and our performance shares, payouts are capped at a maximum level, thereby reducing the risk that executives might be motivated to take excessive risk in order to attain excessively high performance in order to maximize payouts; (iii) we maintain a balance between short-term and long-term incentives; (iv) we maintain stock ownership and retention guidelines that are designed to incentivize our management team to focus on the Company’s long-term sustainable growth; and (v) we maintain a clawback policy, discussed in “Clawback Policy” on page 47,50, designed to prevent misconduct relative to financial reporting.reporting; and (vi) the Committee discusses risk in connection with compensation for which it is responsible.
Share Ownership and Retention Guidelines
Since 2005 we have maintained senior managementcommon stock ownership and retention andguidelines. Executives have five years from the time that they become executive officers to meet the ownership guidelines.requirements. Our current guidelines are set forth in the following table.
| Employee | Minimum Shareholding Requirement (X times base salary) |
| CEO | 6X |
| Other Executive Officers | 4X |
| Other | 3X or 1X, depending upon position |
We determine the number of shares corresponding to these thresholds on April 1 of each year using the average annual price of our common stock during the preceding calendar year and the employee’s base salary as of the first business day in April. For purposes of determining whether an employee has met the minimum shareholding requirements, we count shares subject to unvested RSUs, but not shares subject to stock options or unvested performance share awards.shares.
Under the guidelines, an employee’s ability to sell shares associated with equity awards is limited until the officer satisfies a minimum ownership position. Our executive officers are required to retain 75% of net shares received from
| |
vesting of RSUs and performance shares and from the exercise of stock options, until they achieve their minimum shareholding requirement. As of April 1, 2021,2023, each of our continuingcurrently employed named executive officers holds stock in excess of his or her minimum ownership.is compliant with the guidelines.
The Committee periodically reviews these guidelines and may adjust them. Under our policy, if a named executive officer satisfies the minimum share ownership requirements in our guidelines, the Committee monitors future equity awards to that person to assure that the interests of the named executive officer and stockholders continue to be significantly aligned and, if warranted, adjusts the minimum share ownership requirements or adds retention requirements.
Policies Regarding Hedging or Pledging our Common Stock
Our directors and executive officers are prohibited from hedging the economic risk of owning our Common Stock. For
| 2023 Proxy Statement | 44 |
information regarding our policies relating to directors, executive officers and other employees hedging or pledging the Company’s common stock, see “Policies Regarding Hedging and Pledging our Common Stock; Window Periods” on page 18.19.
Compensation and Leadership Development Committee Report
The Compensation and Leadership Development Committee has reviewed and discussed with management the Compensation Discussion and Analysis. Based on its review and discussions with management, the Compensation and Leadership Development Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into the Company’s Annual Report on Form 10-K for 2020.2022.
Compensation and Leadership Development Committee
Vicky B. Gregg, Chair
Denise M. Morrison
Timothy M. Ring ChairVicky B. GreggDenise M. MorrisonHelen I. Torley
This table summarizes the compensation for 20202022 for each of our named executive officers.
| Name and Principal Position | Year | Salary ($)(1) | Bonus ($) | Stock Awards ($)(2) | Option Awards ($)(3) | Non-Equity Incentive Plan Compensation ($)(4) | All Other Compensation ($)(5) | Total ($) | ||||||||||||||||||||||
| Stephen H. Rusckowski | 2020 | 1,107,692 | 7,279,883 | 2,500,020 | 3,000,000 | 194,013 | 14,081,608 | |||||||||||||||||||||||
| Chairman, President and Chief | 2019 | 1,100,000 | 4,348,074 | 3,039,982 | 1,373,790 | 256,693 | 10,118,539 | |||||||||||||||||||||||
| Executive Officer | 2018 | 1,100,000 | 4,650,086 | 3,099,916 | 788,700 | 314,585 | 9,953,287 | |||||||||||||||||||||||
| Mark J. Guinan | 2020 | 591,385 | 1,569,547 | 690,012 | 905,883 | 46,597 | 3,803,424 | |||||||||||||||||||||||
| Executive Vice President | 2019 | 620,000 | 1,287,373 | 899,872 | 464,563 | 44,187 | 3,315,995 | |||||||||||||||||||||||
| and Chief Financial Officer | 2018 | 613,077 | 1,380,070 | 919,930 | 263,746 | 56,461 | 3,233,284 | |||||||||||||||||||||||
| James E. Davis | 2020 | 577,231 | 1,569,547 | 690,012 | 815,050 | 42,866 | 3,694,706 | |||||||||||||||||||||||
| Executive Vice President, | 2019 | 590,000 | 1,230,129 | 859,913 | 402,097 | 40,781 | 3,122,920 | |||||||||||||||||||||||
| General Diagnostics | 2018 | 590,000 | 1,320,103 | 879,899 | 225,616 | 51,006 | 3,066,624 | |||||||||||||||||||||||
| Carrie Eglinton Manner | 2020 | 566,538 | 1,364,907 | 600,011 | 707,493 | 40,032 | 3,278,981 | |||||||||||||||||||||||
| Senior Vice President, | 2019 | 575,000 | 1,001,320 | 699,880 | 354,099 | 47,258 | 2,677,557 | |||||||||||||||||||||||
| Advanced Diagnostics | 2018 | 575,000 | 1,050,097 | 699,914 | 206,137 | 354,875 | 2,886,023 | |||||||||||||||||||||||
| Manuel O. Mendez (6) | 2020 | 572,308 | 1,364,907 | 600,011 | —(7) | 995,192 | 3,532,418 | |||||||||||||||||||||||
| Former Senior Vice President and Chief Commercial Officer | 2019 | 147,962 | 800,000 | 2,888,517 | 266,635 | 480,000 | — | 4,583,114 | ||||||||||||||||||||||
| Name and Principal Position | Year | Salary ($)(1, 2) | Bonus ($) | Stock Awards ($)(3) | Option Awards ($)(4) | Non-Equity Incentive Plan Compensation ($)(2, 5) | All Other Compensation ($)(6) | Total ($) | ||||||||
James E. Davis Chairman, Chief Executive Officer and President (7) | 2022 | 805,769 | - | 8,542,446 | 1,249,946 | 1,082,853 | 202,012 | 11,883,027 | ||||||||
| 2021 | 625,385 | - | 1,567,373 | 689,871 | 816,690 | 72,022 | 3,771,341 | |||||||||
| 2020 | 577,231 | - | 1,569,547 | 690,012 | 815,050 | 42,866 | 3,694,706 | |||||||||
Sam A. Samad Executive Vice President and Chief Financial Officer (7) | 2022 | 300,000 | 1,200,000 | 3,330,906 | 624,865 | 725,693 | 87,518 | 6,268,982 | ||||||||
Catherine T. Doherty Senior Vice President, Regional Businesses | 2022 | 594,231 | - | 1,234,571 | 424,854 | 580,500 | 39,154 | 2,873,309 | ||||||||
| 2021 | 575,000 | - | 1,090,337 | 479,939 | 625,744 | 40,563 | 2,811,583 | |||||||||
Michael E. Prevoznik Senior Vice President and General Counsel | 2022 | 535,000 | - | 1,016,786 | 349,798 | 487,796 | 53,920 | 2,443,300 | ||||||||
Patrick Plewman Senior Vice President, Diagnostic Services (7) | 2022 | 512,104 | - | 728,227 | 249,758 | 441,276 | 48,579 | 1,979,943 | ||||||||
| Former Executive Officers | ||||||||||||||||
Stephen H. Rusckowski Former Chairman, Chief Executive Officer and President | 2022 | 1,278,846 | - | 8,350,579 | 2,874,884 | 2,856,686 | 317,168 | 15,678,164 | ||||||||
| 2021 | 1,238,462 | - | 7,631,057 | 2,624,978 | 2,695,511 | 367,810 | 14,557,818 | |||||||||
| 2020 | 1,107,692 | - | 7,279,883 | 2,500,020 | 3,000,000 | 194,013 | 14,081,608 | |||||||||
Mark J. Guinan Former Executive Vice President and Chief Financial Officer (7) | 2022 | 398,462 | - | 835,070 | 801,102 | 444,862 | 61,913 | 2,541,409 | ||||||||
| 2021 | 643,077 | - | 1,567,373 | 689,871 | 839,794 | 77,448 | 3,817,563 | |||||||||
| 2020 | 591,385 | - | 1,569,547 | 690,012 | 905,883 | 46,597 | 3,803,424 | |||||||||
Carrie Eglinton Manner Former Senior Vice President, Advanced and General Diagnostics and Clinical Solutions (7) | 2022 | 270,673 | - | 3,392,590 | 499,910 | - | 48,358 | 4,211,531 | ||||||||
| 2021 | 600,000 | - | 1,362,859 | 599,962 | 696,480 | 65,375 | 3,324,676 | |||||||||
| 2020 | 566,538 | - | 1,364,907 | 600,011 | 707,493 | 40,032 | 3,278,981 |
| 45 | 2023 Proxy Statement |
| (1) | Includes amounts deferred by named executive officers into the 401(k) Plan and the SDCP (see |
| (2) | |
| Represents the aggregate grant date fair value, based on the valuation methodology (including assumptions) set forth in footnote |
| 2018 ($) | 2019 ($) | 2020 ($) | |||||
| Rusckowski | 7,750,143 | 7,176,138 | 12,059,720 | ||||
| Guinan | 2,300,082 | 2,124,703 | 2,449,023 | ||||
| Davis | 2,200,137 | 2,030,226 | 2,449,023 | ||||
| Eglinton Manner | 1,750,127 | 1,652,568 | 2,129,703 | ||||
| Mendez* | — | 3,143,653 | 2,129,703 |
| Represents the aggregate grant date fair values of the awards, based on the valuation methodology (including assumptions) set forth in footnote | |
| Represents payments of non-equity incentive plan compensation under the SMIP in respect of the year earned and includes amounts deferred under the SDCP. See the discussion regarding annual incentive compensation in “Compensation Discussion and Analysis” beginning on page | |
| All other compensation for |
| Rusckowski ($) | Guinan ($) | Davis ($) | Eglinton Manner ($) | Mendez ($) | ||||||||||||||||
| Matching contributions under the 401(k) Plan | 14,250 | 14,250 | 14,250 | 14,250 | — | |||||||||||||||
| Matching credits under SDCP | 98,286 | 32,347 | 28,616 | 25,782 | — | |||||||||||||||
| Tax and financial planning | — | — | — | — | 11,515 | |||||||||||||||
| Personal ground transportation | 28,777 | (a) | — | — | — | 100 | (b) | |||||||||||||
| Use of company aircraft | 52,700 | (c) | — | — | — | — | ||||||||||||||
| Relocation | — | — | — | — | 983,577 | (d) | ||||||||||||||
| Totals | 194,013 | 46,597 | 42,866 | 40,032 | 995,192 | |||||||||||||||
| Davis ($) | Samad ($) | Doherty ($) | Prevoznik ($) | Plewman ($) | ||||||
| Matching contributions under the 401(k) Plan | 15,250 | - | 14,971 | 15,250 | 15,250 | |||||
| Matching credits under SDCP | 65,873 | - | 24,183 | 38,670 | 28,658 | |||||
| Personal ground transportation | 12,612(a) | - | - | - | - | |||||
| Use of company aircraft | 32,631(b) | - | - | - | - | |||||
| Executive physical | 4,640 | - | - | - | - | |||||
| Relocation | 62,568 | 87,518 | - | - | - | |||||
| Tax and Financial Planning | 8,438 | - | - | - | 4,671 | |||||
| Totals | 202,012 | 87,518 | 39,154 | 53,920 | 48,579 |
| (a) | Includes the following expenses (determined as a percentage of the total use of the vehicle) attributable to Mr. Davis’s personal use of a company-provided vehicle: (i) the vehicle lease cost; (ii) the invoiced expenses of the vehicle’s driver, including tolls; (iii) invoiced vehicle fuel, insurance, repair and maintenance costs; and (iv) rental car costs. | |
| (b) | Mr. Davis and his family use Company-provided aircraft for personal travel. The Compensation and Leadership Development Committee has adopted a policy regarding personal use of the corporate aircraft by our Chief Executive Officer. In connection with the policy, Mr. Davis entered into a time-sharing agreement with the Company under which he reimburses the Company for its aggregate incremental costs related to his personal use of Company aircraft and a Company-provided vehicle above $175,000. The amount shown in the chart is the incremental cost to the Company of personal use of the corporate aircraft. Incremental costs are based on the variable costs that the Company incurred: operating cost per flight hour, including fuel, lubricants and maintenance; landing and parking fees; crew expenses; and small supplies and catering. This excludes non-variable costs that would have been incurred regardless of whether there was any personal use of the aircraft. Personal use of our aircraft by other employees requires approval by the Chief Executive Officer. |
| 2023 Proxy Statement | 46 |
All other compensation for 2022 consists of the following for the former named executive officers:
Rusckowski | Guinan | Eglinton Manner | ||||||||||
| Matching contributions under the 401(k) Plan | 15,250 | 15,250 | 15,250 | |||||||||
| Matching credits under SDCP | 131,545 | 46,663 | 33,108 | |||||||||
| Personal ground transportation | 70,373(c) | |||||||||||
| Use of company aircraft | 100,000(d) | |||||||||||
| Executive physical | ||||||||||||
| Financial Planning | ||||||||||||
| Totals | 317,168 | 61,913 | 48,358 | |||||||||
| (c) | Includes the following expenses (determined as a percentage of the total use of the vehicle) attributable to Mr. Rusckowski’s personal use of a company-provided vehicle: (i) the vehicle lease cost; (ii) the invoiced expenses of the vehicle’s driver, including tolls; (iii) invoiced vehicle fuel, insurance, repair and maintenance costs; and (iv) rental car costs. | |
| The Company |
| |
| Mr. |
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($) | Total ($) | ||||||||||||||||||||||
| Manuel O. Mendez | 2020 | 572,308 | — | 199,999 | 200,004 | — | 11,615 | 983,926 | ||||||||||||||||||||||
| Senior Vice President and | 2019 | 147,962 | — | 1,316,584 | 177,746 | 480,000 | — | 2,122,292 | ||||||||||||||||||||||
| Chief Commercial Officer | ||||||||||||||||||||||||||||||
The table directly above excludes the following amounts required to be reported in the Summary Compensation Table which were forfeited in 2021 and will not be received or retained by Mr. Mendez:
This table is not required by SEC rules and is not designed to replace the Summary Compensation Table. However, we believe it is useful for stockholders to understand the compensation that Mr. Mendez retained following his resignation.
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This table provides information about plan-based awards granted in 2020.2022.
| Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock | All Other Option | Grant Date | ||||||||||||||||||||
| Threshold | Target | Maximum | Threshold | Target | Maximum | Awards: Number of Shares of Stock or Units | Awards: Number of Securities Underlying Options | Exercise or Base Price of Option Awards | Closing Market Price on Grant Date | Fair Value of Stock and Option Awards | ||||||||||||||
| Name | Grant Date | ($)(1) | ($)(1) | ($)(1) | (#)(2) | (#)(2) | (#)(2) | (#)(3) | (#)(4) | ($/Sh)(5) | ($/Sh) | ($)(6) | ||||||||||||
| Rusckowski | 2/18/2020 | 415,385 | 1,661,539 | 3,323,078 | 3,164 | 42,180 | 84,360 | 4,779,838 | ||||||||||||||||
| 2/18/2020 | 145,361 | 112.17 | 112.59 | 2,500,020 | ||||||||||||||||||||
| 2/18/2020 | 22,288 | 2,500,045 | ||||||||||||||||||||||
| Guinan | 2/18/2020 | 133,062 | 532,246 | 1,064,492 | 582 | 7,761 | 15,522 | 879,477 | ||||||||||||||||
| 2/18/2020 | 40,120 | 112.17 | 112.59 | 690,012 | ||||||||||||||||||||
| 2/18/2020 | 6,152 | 690,070 | ||||||||||||||||||||||
| Davis | 2/18/2020 | 115,446 | 461,785 | 923,570 | 582 | 7,761 | 15,522 | 879,477 | ||||||||||||||||
| 2/18/2020 | 40,120 | 112.17 | 112.59 | 690,012 | ||||||||||||||||||||
| 2/18/2020 | 6,152 | 690,070 | ||||||||||||||||||||||
| Eglinton | 2/18/2020 | 113,308 | 453,231 | 906,462 | 506 | 6,749 | 13,498 | 764,797 | ||||||||||||||||
| Manner | 2/18/2020 | 34,887 | 112.17 | 112.59 | 600,011 | |||||||||||||||||||
| 2/18/2020 | 5,350 | 600,110 | ||||||||||||||||||||||
| Mendez (7) | 2/18/2020 | 114,462 | 457,846 | 915,692 | 506 | 6,749 | 13,498 | 764,797 | ||||||||||||||||
| 2/18/2020 | 34,887 | 112.17 | 112.59 | 600,011 | ||||||||||||||||||||
| 2/18/2020 | 5,350 | 600,110 | ||||||||||||||||||||||
Name | Grant Date | Estimated Future Payouts Under Non- | Estimated Future Payouts Under Equity | All Other | All Other | Exercise | Closing | Grant | |||||||||||||||||
Threshold | Target | Maximum | Threshold | Target | Maximum | ||||||||||||||||||||
($)(1) | ($)(1) | ($)(1) | (#)(2) | (#)(2) | (#)(2) | ||||||||||||||||||||
| Davis | 2/24/2022 | 218,229 | 872,917 | 1,745,834 | 731 | 19,504 | 39,008 | 129.51 | 2,380,658 | ||||||||||||||||
| 2/24/2022 | 47,529 | 127.73 | 129.51 | 1,249,946 | |||||||||||||||||||||
| 2/24/2022 | 9,787 | 129.51 | 1,250,045 | ||||||||||||||||||||||
| 11/1/2022 | 752 | 20,059 | 40,118 | 142.78 | 2,911,764 | ||||||||||||||||||||
| 11/1/2022 | 13,980 | 142.78 | 1,999,979 | ||||||||||||||||||||||
| 47 | 2023 Proxy Statement |
| Samad | 7/11/2022 | 146,250 | 585,000 | 1,170,000 | 333 | 8,871 | 17,742 | 135.97 | 1,205,746 | ||||||||||||||||
| 7/11/2022 | 19,658 | 135.59 | 135.97 | 624,865 | |||||||||||||||||||||
| 7/11/2022 | 4,610 | 135.97 | 625,047 | ||||||||||||||||||||||
| 7/11/2022 | 11,064 | 135.97 | 1,500,112 | ||||||||||||||||||||||
| Doherty | 2/24/2022 | 111,419 | 445,673 | 891,346 | 249 | 6,632 | 13,264 | 129.51 | 809,502 | ||||||||||||||||
| 2/24/2022 | 16,155 | 127.73 | 129.51 | 424,854 | |||||||||||||||||||||
| 2/24/2022 | 3,328 | 129.51 | 425,069 | ||||||||||||||||||||||
| Prevoznik | 2/24/2022 | 93,625 | 374,500 | 749,000 | 205 | 5,462 | 10,924 | 129.51 | 666,692 | ||||||||||||||||
| 2/24/2022 | 13,301 | 127.73 | 129.51 | 349,798 | |||||||||||||||||||||
| 2/24/2022 | 2,741 | 129.51 | 350,094 | ||||||||||||||||||||||
| Plewman | 2/24/2022 | 83,218 | 332,870 | 665,739 | 66 | 1,756 | 3,512 | 129.51 | 214,337 | ||||||||||||||||
| 2/24/2022 | 4,274 | 127.73 | 129.51 | 112,400 | |||||||||||||||||||||
| 2/24/2022 | 881 | 129.51 | 112,526 | ||||||||||||||||||||||
| 3/21/2022 | 70 | 1,869 | 3,738 | 143.85 | 263,828 | ||||||||||||||||||||
| 3/21/2022 | 4,313 | 144.47 | 143.85 | 137,357 | |||||||||||||||||||||
| 3/21/2022 | 952 | 143.85 | 137,535 | ||||||||||||||||||||||
Former Executive Officers | |||||||||||||||||||||||||
| Rusckowski | 2/24/2022 2/24/2022 2/24/2022 | 479,568 | 1,918,269 | 3,836,538 | 1,682 | 44,859 | 89,718 | 129.51 | 5,475,490 | ||||||||||||||||
| 109,317 | 127.73 | 129.51 | 2,874,884 | ||||||||||||||||||||||
| 22,510 | 129.51 | 2,875,090 | |||||||||||||||||||||||
| Guinan | 2/24/2022 | 89,654 | 358,615 | 717,231 | 168 | 4,486 | 8,972 | 129.51 | 547,561 | ||||||||||||||||
| 2/24/2022 | 10,932 | 127.73 | 129.51 | 287,496 | |||||||||||||||||||||
| 2/24/2022 | 2,251 | 129.51 | 287,509 | ||||||||||||||||||||||
| 7/29/2022 | 513,606 | (7) | |||||||||||||||||||||||
| Eglinton Manner | 2/24/2022 | 54,135 | 216,538 | 433,077 | 293 | 7,802 | 15,604 | 129.51 | 952,312 | ||||||||||||||||
| 2/24/2022 | 1,958 | 7,830 | 15,660 | 129.51 | 940,148 | ||||||||||||||||||||
| 2/24/2022 | 19,009 | 127.73 | 129.51 | 499,910 | |||||||||||||||||||||
| 2/24/2022 | 3,915 | 129.51 | 500,043 | ||||||||||||||||||||||
| 2/24/2022 | 7,830 | 129.51 | 1,000,087 |
| (1) | Represents the threshold, target, and maximum awards set for the |
| (2) | Represents threshold, target, and maximum awards for performance shares granted in |
| (3) | Represents the number of RSUs granted in |
| (4) | Represents the number of options granted in |
| (5) | The exercise price is the average of the high and low sales price on the date of grant. |
| (6) | Represents the grant date fair market value of each award as determined pursuant to Financial Accounting Standards Board Accounting Standards Codification Topic 718, “Compensation—Stock Compensation.” |
| (7) | Represents the incremental fair value resulting from the application of retirement treatment to fully vested stock options granted to Mr. Guinan in 2017. |
| (8) | As a result of |
Additional Information Regarding 20202022 Summary Compensation and Grants of Plan-Based Awards Tables
Please see “Compensation Discussion and Analysis,” beginning on page 23,24, for additional information regardingregarding: (i) the material terms of targets noted in the 20202022 Summary Compensation Table, regardingTable; (ii) the amount of salary and bonus in
| 2023 Proxy Statement | 48 |
proportion to total compensationcompensation; and regarding(iii) our share ownership and retention guidelines. No named executive officer participates in a Company-sponsored tax-qualified defined benefit plan or non-qualified supplemental defined benefit plan.
Key Terms of Equity Awards Granted in 20202022.
Annual Equity Awards. Performance shares, options and RSUs were awarded to the named executive officers (other than Mr. Samad) in February 2020.2022 and to Mr. Samad in July 2022 in connection with his undertaking the Chief Financial Officer role. Each option generally has a term of ten years, subject to earlier expiration upon
| 2021 Proxy Statement |
termination of employment. Options and RSUs generally vest ratably over a three-year period and performance shares generally vest on the third anniversary of the date of grant.February 24, 2025. Dividend equivalents are payable on the RSUs in the same amounts, if any, as dividends are paid on the Company’s outstanding shares of common stock. We do not pay dividend equivalents on performance shares. After RSUs and performance shares have vested and settled by the delivery of shares of common stock, those shares receive dividends on the same basis as all other outstanding shares of the Company’s common stock.
In general, any awards of options, RSUs or performance shares that have not vested as of the date of an employee’s termination of employment are cancelled. In the event of termination due to death, disability or retirement, however, awards vest in full; provided,full (provided that the retirement occurs after the one-year anniversary of the grant date.date). In the case of retirement, vested stock options remain exercisable for up to five years following retirement. In the event of involuntary termination without “cause” or as a result of a divestiture, the employee will vest in a pro rata number of performance shares based on the number of months in the performance period that have lapsed from the grant date to the termination date. Performance shares that vest in connection with termination of employment remain nevertheless subject to the earn-out requirements based on Company performance during the performance period ending December 31, 20222024 and are paid only at the end of the three-year performance period and only to the extent that the performance conditions have been satisfied. Retirement means the voluntary cessation of employment by the employee upon the attainment of age sixty (60) and the completion of not less than five (5) years of service with the Company; provided, however, that there is no basis for the Company to terminate the employment of the Employee for “cause” at the time of the employee’s voluntary cessation of employment. The definition of “cause” is provided under “2020“2022 Potential Payments Uponupon Termination or Change in Control” beginning on page 51)54).
In addition, the awards vest on an accelerated basis following a “change in control” only if, within two years after the change in control, the named executive officer’s employment is terminated by the Company without “cause” or by the named executive officer for “good reason” (the definition of “good reason” is provided under “2020“2022 Potential Payments Uponupon Termination or Change in Control” beginning on page 51)54), or if the surviving entity in the change in control does not agree to assume the awards or grant substitute awards that present similar economic opportunity. A “change in control” occurs if and when:
| (i) | any person becomes the beneficial owner of securities of the Company representing 40% or more of the combined voting power of the Company’s then outstanding securities; or | |
| (ii) | a majority of the Company’s directors are not “continuing directors;” or | |
| (iii) | the Company consummates any of the following transactions that are required to be approved by stockholders: (a) a transaction in which the Company ceases to be an independent publicly-owned corporation, (b) the sale or other disposition of all or substantially all of the Company’s assets or (c) a plan of partial or complete liquidation of the Company. |
Transition Awards.
2022 was a year of significant transition in the management of our Company. The Committee took numerous actions during 2022 to foster the success of that transition, including approving the equity awards discussed below. Except as noted below, these awards have generally the same terms and conditions as the annual awards issued to the named executive officers in 2022.
Mr. Davis. Mr. Davis received an award of performance shares and RSUs having a grant date value of $5.0 million effective November 1, 2022, when he became Chief Executive Officer and President. This award consisted of 60% performance shares and 40% RSUs, and does not include a vesting-upon-retirement feature. The RSUs cliff vest on November 1, 2025.
Mr. Samad. Mr. Samad received an award of RSUs having a grant date value of $1.5 million to compensate him for certain forfeitures incurred in connection with the termination of his employment from his immediately preceding employer
| 49 | 2023 Proxy Statement |
and as a sign-on inducement. 50% of these RSUs are scheduled to vest on each of the first and second anniversaries of the grant date.
Mr. Plewman. Mr. Plewman received an additional equity award having a grant date value of $550,000 in April 2022 in connection with his promotion to Senior Vice President, Diagnostic Services.
Mr. Guinan. Reflecting his expected retirement during 2022, Mr. Guinan’s 2022 award provided that it would vest upon his retirement, without regard to a need for one year of service after the grant date, provided that he successfully transitioned the Chief Financial Officer responsibilities to his successor. Mr. Guinan also received retirement treatment with respect to his fully vested 2017 stock options.
Ms. Eglinton Manner. In addition to her annual award, Ms. Eglinton Manner received a retention award having a grant date value of $2.0 million. The retention award consisted of 50% RSUs and 50% performance shares, each cliff-vesting three years after the grant date. The performance shares had performance goals related to compound annual growth in revenues associated with the services offerings for which Ms. Eglinton Manner had management responsibility, other than revenues associated with (i) COVID-19 testing and (ii) business acquisitions completed subsequent to January 1, 2022. Ms. Eglinton Manner forfeited this award when she terminated employment in 2022.
Clawback Policy. We maintain an Incentive Compensation Recoupment Policy (commonly known as a “clawback” policy). The recoupment policy covers all of our current and former executive officers, our principal accounting officer and any other employee who receives an equity award under our Employee Plan. Under the policy, incentive compensation (including without limitation cash and equity awards (whether vested or unvested)) is subject to recoupment and recovery by the Company, including after an award has been settled or paid, if a performance measure considered by the Compensation and Leadership Development Committee in making the award is adjusted or restated in a manner that would have had the effect of reducing the size of the award when made. In addition, if a covered employee engaged in gross negligence or intentional misconduct that contributed to the award or payment of incentive compensation that is greater than would have been paid or awarded absent the misconduct, we may seek to recover the entire award or payment, or take other remedial and recovery action, as determined by the Compensation and Leadership Development Committee. Thus, for example, if supervisory personnel were to engage in gross negligence or intentional misconduct, the policy would apply.
Employment Agreement.
Mr. Rusckowski entered into an employment letter agreement with the Company on April 9, 2012 in connection with his appointment as CEO and President. As amended, at this time, the employment agreement providesprovided that its term iswas automatically extended for successive additional one-year periods unless at least six months prior to the end of any applicable one-year extended term, either party shall have notified the other in writing that the agreement will expire on the last day thereof. The employment agreement providesprovided for:
| • | an annual base salary, subject to annual review by the Board (or a committee thereof); | |
| • | participation in the SMIP, with a target amount of 130% of his annual base salary; |
| 2021 Proxy Statement |
| • | eligibility for annual long-term incentive awards; | |
| • | participation in the employee benefit programs generally available to senior executives of the Company, including health insurance, life and disability insurance, the Employee Stock Purchase Plan, a 401(k) plan and a flexible spending plan; | |
| • | application of the Company’s share ownership and retention guidelines to Mr. Rusckowski; | |
| • | reimbursement for the cost of a personal driver for business purposes (including transportation between Mr. Rusckowski’s personal residence and the Company’s offices); | |
| • | Mr. Rusckowski’s participation in the Severance Plan as a Schedule A participant. In addition, pursuant to his employment agreement, Mr. Rusckowski | |
| • | Mr. Rusckowski’s nomination for election to the Board. |
| 2023 Proxy Statement | 50 |
Mr. Rusckowski’s employment agreement also providesprovided that his performance-based and incentive-based compensation iswas subject to clawback by the Company pursuant to any Company corporate governance guidelines or policies, each as may be in effect from time to time. In addition, Mr. Rusckowski’s employment agreement terminated December 31, 2022.
Mr. Rusckowski hasalso entered into the Company’s standard restrictive covenant agreement, which includes a covenant not to compete with the Company and not to solicit the Company’s employees or customers for a period of one year following the termination of his employment.
| Outstanding Equity Awards at |
This table provides information regarding stock option and unvested stock awards held at December 31, 2020.2022.
| Name | Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable(1) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)(2) | Market Value of Shares or Units of Stock That Have Not Vested ($)(5) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(5) | |||||||||||||
| Rusckowski | 2/21/2017 | 187,845 | $95.80 | 2/21/2027 | ||||||||||||||||||
| 2/19/2018 | 114,040 | 57,021 | $103.57 | 2/19/2028 | 65,851 | 7,847,464 | ||||||||||||||||
| 2/18/2019 | 71,234 | 142,470 | $86.63 | 2/18/2029 | 13,160 | 1,568,277 | 35,092 | (3) | 4,181,914 | |||||||||||||
| 2/18/2020 | 145,361 | $112.17 | 2/18/2030 | 22,288 | 2,656,061 | 42,180 | (4) | 5,026,591 | ||||||||||||||
| Guinan | 2/21/2017 | 57,606 | $95.80 | 2/21/2027 | ||||||||||||||||||
| 2/19/2018 | 33,842 | 16,922 | $103.57 | 2/19/2028 | 19,543 | 2,328,939 | ||||||||||||||||
| 2/18/2019 | 21,086 | 42,173 | $86.63 | 2/18/2029 | 3,897 | 464,405 | 10,390 | (3) | 1,238,176 | |||||||||||||
| 2/18/2020 | 40,120 | $112.17 | 2/18/2030 | 6,152 | 733,134 | 7,761 | (4) | 924,878 | ||||||||||||||
| Davis | 2/21/2017 | 55,093 | $95.80 | 2/21/2027 | ||||||||||||||||||
| 2/19/2018 | 32,370 | 16,185 | $103.57 | 2/19/2028 | 18,695 | 2,227,883 | ||||||||||||||||
| 2/18/2019 | 20,150 | 40,300 | $86.63 | 2/18/2029 | 3,723 | 443,670 | 9,928 | (3) | 1,183,120 | |||||||||||||
| 2/18/2020 | 40,120 | $112.17 | 2/18/2030 | 6,152 | 733,134 | 7,761 | (4) | 924,878 | ||||||||||||||
| Eglinton | 2/21/2017 | 37,565 | $95.80 | 2/21/2027 | ||||||||||||||||||
| Manner | 2/19/2018 | 25,748 | 12,875 | $103.57 | 2/19/2028 | 14,871 | 1,772,177 | |||||||||||||||
| 2/18/2019 | 16,400 | 32,800 | $86.63 | 2/18/2029 | 3,031 | 361,204 | 8,081 | (3) | 963,013 | |||||||||||||
| 2/18/2020 | 34,887 | $112.17 | 2/18/2030 | 5,350 | 637,560 | 6,749 | (4) | 804,278 | ||||||||||||||
| Mendez (6) | 10/1/2019 | 5,323 | 10,647 | $106.94 | 10/1/2029 | |||||||||||||||||
| 10/1/2019 | 936 | 111,543 | ||||||||||||||||||||
| 10/1/2019 | 11,690 | 1,393,097 | 2,494 | (3) | 297,210 | |||||||||||||||||
| 2/18/2020 | 34,887 | $112.17 | 2/18/2030 | 5,350 | 637,560 | 6,749 | (4) | 804,278 | ||||||||||||||
| Name | Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable(1) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)(2) | Market Value of Shares or Units of Stock That Have Not Vested ($)(5) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(5) | ||
| Davis | 2/21/2017 | 55,093 | - | $95.80 | 2/21/2027 | ||||||
| 2/19/2018 | 48,555 | - | $103.57 | 2/19/2028 | |||||||
| 2/18/2019 | 60,450 | - | $86.63 | 2/18/2029 | |||||||
| 2/18/2020 | 26,746 | 13,374 | $112.17 | 2/18/2030 | 17,255 | 2,699,372 | |||||
| 2/17/2021 | 10,591 | 21,183 | $121.81 | 2/17/2031 | 3,777 | 590,874 | 7,218 | (3) | 1,129,184 | ||
| 2/24/2022 | - | 47,529 | $127.73 | 2/24/2032 | 9,787 | 1,531,078 | 19,504 | (4) | 3,051,206 | ||
| 11/1/2022 | 13,980 | 2,187,031 | 20,059 | (4) | 3,138,030 | ||||||
| Samad | 7/11/2022 | - | 19,658 | $135.59 | 7/11/2032 | 15,674 | 2,452,041 | 8,871 | (4) | 1,387,779 | |
| Doherty | 2/19/2018 | 33,103 | - | $103.57 | 2/19/2028 | ||||||
| 2/18/2020 | 17,443 | 8,722 | $112.17 | 2/18/2030 | 11,255 | 1,760,732 | |||||
| 2/17/2021 | 7,368 | 14,737 | $121.81 | 2/17/2031 | 2,628 | 411,124 | 5,021 | (3) | 785,485 | ||
| 2/24/2022 | - | 16,155 | $127.73 | 2/24/2032 | 3,328 | 520,632 | 6,632 | (4) | 1,037,510 | ||
Prevoznik
| 2/21/2017 | 32,551 | - | $95.80 | 2/21/2027 | ||||||
| 2/19/2018 | 28,690 | - | $103.57 | 2/19/2028 | |||||||
| 2/18/2019 | 35,146 | - | $86.63 | 2/18/2029 | |||||||
| 2/18/2020 | 15,118 | 7,559 | $112.17 | 2/18/2030 | 9,754 | 1,525,916 | |||||
| 2/17/2021 | 5,986 | 11,972 | $121.81 | 2/17/2031 | 2,135 | 333,999 | 4,080 | (3) | 638,275 | ||
| 2/24/2022 | - | 13,301 | $127.73 | 2/24/2032 | 2,741 | 428,802 | 5,462 | (4) | 854,475 | ||
| Plewman | 2/18/2019 | 3,560 | - | $86.63 | 2/18/2029 | ||||||
| 2/18/2020 | 2,266 | 2,266 | $112.17 | 2/18/2030 | 2,927 | 457,900 | |||||
| 2/17/2021 | 1,887 | 3,775 | $121.81 | 2/17/2031 | 674 | 105,441 | 1,287 | (3) | 201,338 | ||
| 2/24/2022 | - | 4,274 | $127.73 | 2/24/2032 | 881 | 137,824 | 1,756 | (4) | 274,709 | ||
| 3/21/2022 | - | 4,313 | $144.47 | 3/21/2032 | 952 | 148,931 | 1,869 | (4) | 292,386 | ||
| Former Executive Officers (6) | |||||||||||
Rusckowski
| 2/18/2020 2/17/2021 2/24/2022 | 96,607 | 48,454 | $112.17 | 2/18/2030 | 90,601 | 14,089,143 | ||||
| 40,300 | 80,601 | $121.81 | 2/17/2031 | 14,638 | 2,247,730 | 41,185 | (3) | 6,442,981 | |||
| - | 109,317 | $127.73 | 2/23/2032 | 22,510 | 3,521,464 | 44,859 | (4) | 7,017,742 | |||
Guinan
| 2/21/2017 | 57,606 | - | $95.80 | 2/21/2027 | ||||||
| 2/19/2018 | 50,764 | - | $103.57 | 7/29/2027 | |||||||
| 2/18/2019 | 63,259 | - | $86.63 | 7/29/2027 | |||||||
| 2/18/2020 | 40,120 | - | $112.17 | 7/29/2027 | 17,255 | 2,699,372 | |||||
| 2/17/2021 | 31,774 | - | $121.81 | 7/29/2027 | 3,777 | 590,874 | 7,218 | (3) | 1,129,184 | ||
| 2/24/2022 | 10,932 | - | $127.73 | 7/29/2027 | 2,251 | 352,146 | 4,486 | (4) | 701,790 |
| 2021 Proxy Statement | ||
| 51 | 2023 Proxy Statement |
| (1) | Each option generally vests in three equal installments on the first three anniversaries of the grant date, subject to earlier expiration following termination of employment. The consequences for option awards issued beginning in |
| (2) | Represents RSUs awarded in |
| The grant date February | |
| (3) | Represents target performance shares awarded in |
| (4) | Represents target performance shares awarded in |
| (5) | Represents fair market value of shares using the closing price on December |
| (6) |
This table provides information regarding stock option exercises during 2020,2022, including the number of shares of common stock acquired upon exercise and the aggregate amount realized on each exercise. The table also provides information regarding RSUs that vested and were paid during 20202022 and performance share awards that were earned based on the performance period ending on December 31, 20192021 and were determined and paid during 2020,2022, including the number of shares awarded and the value realized as of February 28, 2020.18, 2022 (the vesting date).
| Option Awards | Stock Awards | |||||||||||||||
| Name | Number of | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting | Value Realized on Vesting ($) | ||||||||||||
| Rusckowski | 533,992 | 25,654,836 | 15,958 | (1) | 1,800,103 | (1) | ||||||||||
| 25,085 | (2) | 2,670,549 | (2) | |||||||||||||
| 41,043 | (3) | 4,470,652 | (3) | |||||||||||||
| Guinan | 154,352 | 7,747,006 | 4,810 | (1) | 542,590 | (1) | ||||||||||
| 7,693 | (2) | 818,997 | (2) | |||||||||||||
| 12,503 | (3) | 1,361,587 | (3) | |||||||||||||
| Davis | 143,537 | 5,301,123 | 4,600 | (1) | 518,901 | (1) | ||||||||||
| 7,359 | (2) | 783,439 | (2) | |||||||||||||
| 11,959 | (3) | 1,302,340 | (3) | |||||||||||||
Name | Option Awards | Stock Awards | |||||
| Number of Shares Acquired on Exercise | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting | Value Realized on Vesting ($) | ||||
| Davis | N/A | N/A | 6,421 | (1) | 835,572 | (1) | |
| 19,856 | (2) | 2,583,067 | (2) | ||||
| 26,277 | (3) | 3,418,639 | (3) | ||||
| Samad | N/A | N/A | N/A | N/A | |||
| Doherty | 40,765 | 2,549,790 | 4,324 | (1) | 562,693 | (1) | |
| 13,392 | (2) | 1,742,165 | (2) | ||||
| 17,716 | (3) | 2,304,858 | (3) | ||||
| Prevoznik | 50,604 | 3,717,304 | 3,669 | (1) | 477,450 | (1) | |
| 11,544 | (2) | 1,501,759 | (2) | ||||
| 15,213 | (3) | 1,979,209 | (3) | ||||
| Plewman | N/A | N/A | 1,123 | (1) | 146,138 | (1) | |
| 3,510 | (2) | 456,616 | (2) | ||||
| 4,633 | (3) | 602,754 | (3) | ||||
| Former Executive Officers | |||||||
| Rusckowski | 384,765 | 17,706,468 | 23,385 | (1) | 3,043,160 | (1) | |
| 70,184 | (2) | 9,130,237 | (2) | ||||
| 93,569 | (3) | 12,173,397 | (3) | ||||
| Guinan | N/A | N/A | 6,537 | (1) | 850,663 | (1) | |
| 20,780 | (2) | 2,703,270 | (2) | ||||
| 27,317 | (3) | 3,553,933 | (3) | ||||
| Eglinton Manner | 157,857 | 5,161,153 | 5,446 | (1) | 708,700 | (1) | |
| 16,162 | (2) | 2,102,515 | (2) | ||||
| 21,608 | (3) | 2,811,215 | (3) | ||||
| 2021 | ||
| 2023 Proxy Statement | 52 |
| Eglinton Manner | N/A | N/A | 7,772 | (1) | 849,334 | (1) | ||||||||||
| 5,018 | (2) | 534,216 | (2) | |||||||||||||
| 12,790 | (3) | 1,383,550 | (3) | |||||||||||||
| Mendez | N/A | N/A | 12,000 | (1) | 1,367,548 | (1) | ||||||||||
| N/A | (2) | N/A | (2) | |||||||||||||
| 12,000 | (3) | 1,367,548 | (3) |
| (1) | RSUs that vested and were paid during |
| (2) | Performance share awards that were earned based on the performance period ending on December 31, |
| (3) | Total of (1) and (2). |
This table provides information regarding participation by the named executive officers in the SDCP, the Company’s plan that provides for the deferral of compensation on a basis that is not tax-qualified. All named executive officers are eligible to participate in the SDCP. Under the SDCP, participants may defer up to 50% of their regular salary in excess of the Internal Revenue Service limit on compensation eligible for the 401(k) Plan. In addition, participants may defer up to 95% of their annual incentive compensation in excess of the Internal Revenue Service limit on compensation eligible for the 401(k) Plan. The Company provides a 100% matching credit on amounts deferred up to a maximum of 5% of eligible cash compensation, and may, in its discretion, credit additional amounts to a participant’s account. The SDCP is a non-qualified plan under the Internal Revenue Code and does not provide for guaranteed returns on plan contributions. A participant’s deferrals, together with Company matching credits, are adjusted for earnings or losses measured by the rate of return on the notional investments available under the plan to which participants allocate their accounts. Distributions are made after termination of employment or on a date, selected by the participant, prior to the termination of employment.
| Name | Executive Contributions in 2020 ($)(1) | Registrant Contributions in 2020 ($)(2) | Aggregate Earnings in 2020(3) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at 12/31/20 ($)(4) | |||||||||||||||
| Rusckowski | 1,280,120 | 98,286 | 1,830,004 | — | 13,987,184 | |||||||||||||||
| Guinan | 38,547 | 32,347 | 95,008 | — | 709,936 | |||||||||||||||
| Davis | 243,413 | 28,616 | 161,339 | — | 2,428,253 | |||||||||||||||
| Eglinton Manner | 31,782 | 25,782 | 51,163 | — | 285,696 | |||||||||||||||
| Mendez | — | — | — | — | — | |||||||||||||||
| Name | Executive Contributions in 2022 ($)(1) | Registrant Contributions in 2022 ($)(2) | Aggregate Earnings in 2022(3) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at 12/31/22 ($)(4) | |||||
| Davis | 373,950 | 65,873 | (377,771) | - | 2,799,268 | |||||
| Samad | - | - | - | - | - | |||||
| Doherty | 96,731 | 24,183 | (608,269) | - | 3,192,521 | |||||
| Prevoznik | 38,670 | 38,670 | (742,089) | - | 4,743,405 | |||||
| Plewman | 28,658 | 28,658 | (65,952) | - | 343,209 | |||||
| Former Executive Officers | ||||||||||
| Rusckowski | 2,499,351 | 131,545 | (3,160,432) | - | 17,961,072 | |||||
| Guinan | 46,663 | 46,663 | (158,128) | - | 850,225 | |||||
| Eglinton Manner | 33,108 | 33,108 | (73,839) | (94,494) | 252,063 |
| (1) | Amounts deferred at the election of the named executive officer. These amounts are included in the |
| (2) | Company matching credits. These amounts may differ from those shown in the column “All Other Compensation” in the |
| (3) | Earnings (losses) on SDCP accounts. These earnings (losses) are not required to be reported as compensation in the |
| 53 | 2023 Proxy Statement |
| (4) | All amounts contributed by a named executive officer and by the Company in prior years have been reported in the summary compensation table in our previously filed proxy statements in the year earned, to the extent that the executive was named in such proxy statement and the amounts were so required to be reported in such tables. |
| 2021 Proxy Statement |
During 2020,2022, the Severance Plan covered all named executive officers. The Severance Plan provides severance benefits in connection with a “qualifying termination,” which is defined to mean a termination of employment: (1) prior to a “change in control” by the Company other than for “cause” and (2) after a “change in control” by the Company other than for “cause” or by the executive officer for “good reason.”
Unless the “qualifying termination” occurs in connection with a “change in control,” the severance benefit for Schedule A participants in the Severance Plan generally is a lump sum equal to two times the executive officer’s annual base salary at the annual rate in effect on the date of termination of employment plus two times the annual award of variable compensation at the most recent target level. For Schedule B participants, the severance benefit multiplier is one time, rather than two times, annual base salary plus the annual target award of variable compensation. As of December 31, 2022, each of Mr. Rusckowski, isMr. Davis and Mr. Prevoznik was a Schedule A participant and, each of Mr. Guinan,Samad, Ms. Doherty and Mr. Davis and Ms. Eglinton Manner isPlewman was a Schedule B participant in the Severance Plan. Each of Mr. Guinan and Ms. Eglinton Manner was also a Schedule B participant in the Severance Plan; neither qualified for benefits under the Severance Plan in connection with their departures from the Company.
The executive officer and eligible dependents would also be entitled to coverage under the Company’s group medical and life insurance benefit programs on the same terms the Company provides to similarly situated executives for up to 18 months (in the case of Schedule A participants) or up to 12 months (in the case of Schedule B participants) following a qualifying termination. In addition, the executive officer is entitled to receive outplacement assistance for one year and a lump sum payment equal to the amount of any matching contributions or credits made by the Company to the Company’s 401(k) Plan and the SDCP on behalf of the executive officer during the year preceding termination.
Executive officers are not entitled to cash severance benefits on a “change in control.” However, the cash payments due on an involuntary termination by the Company without “cause” or by the named executive officer for “good reason” are increased if the termination occurs in connection with a “change in control.” If the “qualifying termination” occurs during the 24-month period following a “change in control,” or under certain conditions during the 6-month period prior to a “change in control” in anticipation thereof, the severance benefit for Schedule A participants in the Severance Plan will be a lump sum equal to three times the executive officer’s annual base salary and three times the annual award of variable compensation at the most recent target level. For Schedule B participants, the multiplier is two times, rather than three times, the relevant amount. In addition, the executive officer would receive a prorated lump sum payment based on the target incentive award for the year of termination. There is no enhancement to the medical and life insurance coverage and 401(K) plan and SDCP benefits described above for terminations not in connection with a “change in control.” For the treatment of stock options, RSUs and performance share grants upon an executive officer’s termination of employment with rights to receive severance or on a change in control, see “Key Terms of Equity Awards Granted in 2020”2022” beginning on page 46.49.
The Severance Plan uses the following defined terms:
| • | “Cause” means the executive officer’s (1) willful and continued failure to perform duties, (2) willfully engaging in illegal conduct or gross misconduct, (3) engaging in conduct or misconduct that materially harms the reputation or financial position of the Company, (4) obstruction or failure to cooperate with any investigations, (5) commission of a felony or (6) being found liable in any SEC or other civil or criminal securities law action. | |
| • | “Good reason” generally includes (1) any material adverse changes in the duties, responsibilities or status of the executive officer, (2) a material reduction in base salary or annual performance incentive target or equity incentive compensation target opportunities, (3) a relocation more than 50 miles from the executive officer’s original location that increases the executive officer’s commute by more than 50 miles, (4) the Company’s failure to continue any significant compensation and benefit plans or (5) the Company’s failure to obtain the assumption of the Company’s obligations from any successor. |
“Change in control” is defined for purposes of the Severance Plan in a manner that is substantially identical to the definition used for purposes of our equity awards (see “Key Terms of Equity Awards Granted in 2020”2022” beginning on page 46)49).
| 2021 | ||
| 2023 Proxy Statement | 54 |
Under the Severance Plan, the named executive officers are not entitled to any severance benefits on a voluntary termination unless the voluntary termination is in connection with a “change in control” and is for “good reason.” However, in addition to his benefits under the Severance Plan, Mr. Rusckowski iswas entitled, pursuant to his employment agreement, to treat as a “qualifying termination” under the Severance Plan a termination by him for “good reason” prior to a “change in control,” and his severance upon a “qualifying termination” will include a pro rata bonus, based on actual performance, for his termination year.
ThisThe following table provides information regarding the potential payments that would become payable to each named executive officer that remained an employee on December 31, 2022 on an involuntary termination not for “cause” and not in connection with a “change in control.” TheIn calculating the value of accelerated vesting of equity awards, the table assumes a December 31, 2020 termination date and the closing price of the Company’s common stock as of December 31, 2020,2022, which was $119.17.$156.44.
| Name | Cash Compensation ($)(1) | Accelerated Vesting of Stock Options ($)(2) | Accelerated Vesting of Performance Shares ($)(3) | Accelerated Vesting of RSUs ($)(4) | Benefits ($)(5) | Total ($) | ||||||
| Rusckowski (6) | 6,000,000 | 889,528 | 10,907,749 | 891,749 | 190,000 | 18,879,026 | ||||||
| Guinan | 1,178,000 | 263,983 | 3,077,923 | 264,677 | 100,000 | 4,884,583 | ||||||
| Davis | 1,098,000 | 252,486 | 2,954,701 | 253,236 | 100,000 | 4,658,423 | ||||||
| Eglinton Manner | 1,080,000 | 200,850 | 2,382,804 | 201,397 | 100,000 | 3,965,051 | ||||||
| Mendez (7) | - | - | - | - | - | - |
| Name | Cash Compensation ($)(1) | Accelerated Vesting of Performance Shares ($)(2) | Total ($)(3) | |||||||||
| Davis | 5,500,000 | 4,008,306 | 9,668,306 | |||||||||
| Samad | 1,235,000 | 223,866 | 1,498,866 | |||||||||
| Doherty | 1,050,000 | 2,233,650 | 3,383,650 | |||||||||
| Prevoznik | 1,819,000 | 1,897,461 | 3,846,461 | |||||||||
| Plewman | 892,500 | 655,640 | 1,648,140 | |||||||||
| Former Executive Officers | ||||||||||||
| Rusckowski (4) | 6,437,500 | 18,095,571 | 24,783,071 | |||||||||
| (1) | Represents two times or one time (depending on whether the executive is a Schedule A or Schedule B participant in the Severance Plan) the sum of base salary plus the target annual incentive, payable at the same time annual incentives are ordinarily paid to similarly situated executives. |
| (2) | Represents the value of |
| Amounts shown also would | |
Mr. Guinan vested in his 2022 equity award upon in his retirement in July 2022 and his vested 2017 stock option award received retirement treatment. Pursuant to the terms of the SMIP, Mr. Guinan received a prorated annual incentive award for 2022. Ms. Eglinton Manner was not entitled to any payments or other benefit upon departure from the Company in June 2022.
This table provides information regarding the potential payments that would become payable to each named executive officer that remained an employee on December 31, 2022 on a termination for “good reason” or an involuntary termination not for “cause” in connection with a “change in control.” The table assumes a December 31, 20202022 termination date and the closing price of the Company’s common stock as of December 31, 2020,30, 2022, which was $119.17.$156.44.
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| Name | Cash Compensation ($)(1) | Accelerated Vesting of Stock Options ($)(2) | Accelerated Vesting of Performance Shares ($)(3) | Accelerated Vesting of RSUs ($)(4) | Benefits ($)(5) | Total ($)(6) | ||||||
| Rusckowski | 9,000,000 | 6,543,028 | 24,714,309 | 5,116,087 | 190,000 | 45,563,424 | ||||||
| Guinan | 2,356,000 | 1,917,133 | 6,269,295 | 1,462,216 | 100,000 | 12,104,644 | ||||||
| Davis | 2,196,000 | 1,844,688 | 6,069,566 | 1,430,040 | 100,000 | 11,640,294 | ||||||
| Eglinton Manner | 2,160,000 | 1,512,371 | 5,000,016 | 1,200,161 | 100,000 | 9,972,548 | ||||||
| Mendez (7) | – | – | – | – | – | – |
| Name | Cash Compensation ($)(1) | Accelerated Vesting of Stock Options ($)(2) | Accelerated Vesting of Performance Shares ($)(3) | Accelerated Vesting of RSUs ($)(4) | Total ($)(5, 6) | |||||
| Davis | 8,250,000 | 2,690,535 | 12,907,082 | 4,629,842 | 28,637,459 | |||||
| Samad | 2,470,000 | 409,968 | 1,880,565 | 2,452,041 | 7,252,573 | |||||
| Doherty | 2,100,000 | 1,360,430 | 4,447,433 | 1,141,073 | 9,148,936 | |||||
| Prevoznik | 2,728,500 | 1,131,225 | 3,713,416 | 944,115 | 8,647,257 | |||||
| Plewman | 1,785,000 | 405,417 | 1,554,075 | 446,636 | 4,291,129 | |||||
| Former Executive Officers | ||||||||||
| Rusckowski | 9,656,250 | 8,075,712 | 34,658,187 | 6,931,544 | 59,571,692 |
| (1) | Represents three times or two times (depending on whether the executive is a Schedule A or Schedule B participant in the Severance Plan) the sum of base salary and target annual incentive. Excludes annual incentive compensation payable in respect of |
| (2) | Represents the value of accelerated “in the money” stock options. |
| (3) | Represents the value of accelerated performance shares. Performance shares for the performance period ended December 31, |
| (4) | Represents the value of accelerated RSUs. |
| (5) | Includes, for each named executive officer, the value of the following benefits: (i) the cost of group medical and life insurance coverage to the participant to the same extent as the Company pays for such coverage for similarly situated |
| (6) | Amounts payable under the Severance Plan upon termination of employment following a change in control are subject to reduction (“cutback”) to eliminate any loss of deduction for the Company, and any imposition of excise tax on the executive, pursuant to Sections 280G and 4999 of the Internal Revenue Code, respectively. The cutback would reduce severance and other benefits to the maximum amount that could be paid without exceeding the Section 280G threshold and will apply if the net after-tax amount received by the executive exceeds the net after-tax amount the executive would receive if the full benefits were paid and the excise tax imposed. Amounts shown in the table do not reflect the impact of the potential cutback. |
If the employment of a named executive officer had terminated by reason of death, disability or retirement on December 31, 2020,2022, the executive would have been entitled to accelerated vesting of stock options and RSUs in the same amounts (or in the case of retirement, a lesser amount than) shown in the foregoing table.table, and with respect to stock options, an extended exercise period of up to five years from the date of retirement. In addition, assuming that performance shares earned are the greater of (i) the number of shares that would be earned based on Company performance through December 31, 20202022 and (ii) the target number of performance shares, the executive would have been entitled to accelerated vesting of performance shares in the same amount (or in the case of retirement, a lesser amount) shown in the table. In the eventAmong our currently employed named executive officers, each of his retirement, Mr. RusckowskiDavis, Ms. Doherty and Mr. Prevoznik would currently be eligible to receive retirement treatment in the event of her or his retirement (so long as there is no for “cause” basis for his termination at such time).
The named executive officers are not entitled to any benefits upon death or disability beyond what is available to other exempt employees. In the case of any termination (other than for termination for cause), named executive officers are entitled to exercise vested stock options and to receive vested and earned RSUs and performance shares. For the consequences of termination of employment on vesting of equity awards, see “Key Terms of Equity Awards Granted in 2020”2022” beginning on page 46.49. In addition, on any termination, each named executive officer is entitled to receive benefits available generally to exempt employees, such as distributions under the 401(k) Plan and SDCP. For the account
| 2021 Proxy Statement |
balances of each named executive officer under the SDCP, see “2020“2022 Nonqualified Deferred Compensation Table” on page 50.53.
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Pay Ratio
Under SEC rules, we are required to disclose the annual total compensation of the individual identified as the median paid employee of all our employees (other than our CEO), as well as the ratio of this amount to the annual total compensation paid to our CEO. This ratio is an estimate calculated in accordance with SEC rules, which allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions based on their compensation practices. Therefore, the ratio reported by other companies may not be comparable to the ratio we report.
For 2020,2022, the annual total compensation of the individual identified as the median paid employee of all our employees (other than our CEO) was $71,645,$63,854, and the annual total compensation of our CEO was $14,097,039,$11,903,795, including, in each case, the cost of Company-paid broad-based benefits, including 401(k) and health, disability and life insurance. Therefore, our median identified employee to CEO pay ratio was estimated to be approximately 1 to 197.186.
In identifying the 20202022 median employee, we used December 31, 20202022 as our determination date and focused on our employee population as of that date. We considered the compensation of approximately 45,85246,942 individuals; this excluded approximately 701150 employees who worked at Mid America Clinical Laboratories, LLC,Pack Health, and approximately 44 employees of the outreach testing business of Summa Health, each of which we acquired in 2020.
2022. Applying the 5% “De Minimis Exemption” permitted under SEC rules, we also excluded workers, representing approximately 2% of our 20202022 workforce, located in the following countries (with the number of excluded employees set forth in parentheses following the country): India (355)(273); Mexico (468)(570); Finland (153)(254); Canada (87)(60); Brazil (38)(7); Ireland (15)(19); and China (2). To identify our median employee, we used 20202022 wages reported to the Internal Revenue Service, annualized for employees who were employed on December 31, 20202022 but did not work for us for all of 2020.2022.
The Company believes that all required reports have been timely filed since January 1, 2020 under the SEC’s rules for reporting transactions by executive officers, directors and persons who own more than 10% of our common stock, except that, as a result of inadvertent administrative errors, the Company was one business day late in reporting: (i) a 2021 grant of RSUs and options to Manuel Mendez; (ii) a grant of phantom stock units to Timothy Ring; and (iii) a disposition of common stock by Carrie Eglinton Manner to cover tax withholding obligations arising from the settlement of restricted stock units.
Equity Compensation Plan Information
This table provides information as of December 31, 20202022 about our common stock that may be issued upon the exercise of options, warrants and rights under the Company’s equity compensation plans.
| Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted- average exercise price of outstanding options, warrants and rights ($) (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a)) (c) | ||||||||||
| Equity compensation plans approved by security holders | ||||||||||||
| Employee Long-Term Incentive Plan (1) | 7,819,761 | (4) | 90.44 | 9,659,807 | (6)(7) | |||||||
| Long-Term Incentive Plan for Non-Employee Directors (2) | 94,876 | (5) | 64.62 | 153,316 | ||||||||
| Employee Stock Purchase Plan | — | N/A | 3,561,629 | (8) | ||||||||
| Equity compensation plans not approved by security holders (3) | — | N/A | — | |||||||||
| Total | 7,914,637 | 90.32 | 13,374,752 | |||||||||
| Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted- average exercise price of outstanding options, warrants and rights ($) (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a)) (c) | ||||||||||
| Equity compensation plans approved by security holders | ||||||||||||
| Employee Long-Term Incentive Plan (1) | 6,207,674(4) | 101.80 | 5,418,879 | (6)(7) | ||||||||
| Long-Term Incentive Plan for Non-Employee Directors (2) | 76,765(5) | 87.48 | 127,972 | |||||||||
| Employee Stock Purchase Plan | — | N/A | 3,148,220 | (8) | ||||||||
| Equity compensation plans not approved by security holders (3) | — | N/A | — | |||||||||
| Total | 6,284,439 | 101.78 | 8,695,071 | |||||||||
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| (1) | Awards under this plan may consist of stock options, performance shares to be settled by the delivery of shares of common stock (or the value thereof), stock appreciation rights, restricted shares and RSUs to be settled by the delivery of shares of common stock (or the value thereof). |
| (2) | Awards under this plan may consist of stock options or stock awards (which may consist of shares or the right to receive shares, or the value thereof, in the future). |
| (3) | The table does not include 14,538 shares of common stock that were issued to the trust for the SDCP prior to May 2004 that may be distributed to participants under the SDCP. While the SDCP does not provide a stock fund as a current notional investment option, the plan includes a stock investment fund option that was frozen effective April 1, 2004. In addition, prior to January 1, 2003, Company matching credits under the SDCP were credited to participant accounts in the form of shares of common stock. Participants are no longer allowed to notionally invest in additional shares of common stock under the SDCP. |
| 57 | 2023 Proxy Statement |
| (4) | Includes |
| (5) | Includes |
| (6) | Assumes that performance shares for the performance period ended December 31, |
| (7) | Awards of stock options and stock appreciation rights reduce the number of shares available for grant by one share for every share subject to the award. Awards of restricted shares, RSUs and performance shares reduce the number of shares available for grant by 2.65 shares for every one share or unit granted. Thus, if future awards under the Employee Long-Term Incentive Plan consisted exclusively of RSUs and performance shares, awards covering a maximum of |
| (8) | After giving effect to shares issued in January |
Pay Versus Performance
Below is information about the relationship between executive compensation actually paid to our named executive officers and our financial performance, as prepared in accordance with SEC rules. For purposes of the Peer Group Total Shareholder Return column of the Pay Versus Performance Table, we have used the S&P 500 Health Care (Sector) Index, which we also use for purposes of the Stock Performance Graph in our 2022 Annual Report on Form 10-K.
| Value of Initial Fixed $100 Investment Based On: | ||||||||||||||||||||
| Year | Summary Compensation Table Total for First PEO | Summary Compensation Table Total for Second PEO | Compensation Actually Paid to First PEO (1) | Compensation Actually Paid to Second PEO (1) | Average Summary Compensation Table Total for Non-PEO NEOs | Average Compensation Actually Paid to Non-PEO NEOs (2) | Total Shareholder Return | Peer Group Total Shareholder Return (3) | Net Income (in millions) | Adjusted Earnings Per Share | ||||||||||
| 2022 | $15,678,164 | $11,883,027 | $9,817,267 | $12,708,474 | $3,386,412 | $291,674 | $155.48 | $140.30 | $1,015 | $9.95 | ||||||||||
| 2021 | $14,557,818 | N/A | $49,248,658 | N/A | $3,431,291 | $10,580,653 | $168.62 | $143.09 | $2,080 | $14.24 | ||||||||||
| 2020 | $14,081,608 | N/A | $30,970,593 | N/A | $3,577,382 | $7,199,065 | $114.04 | $113.45 | $1,499 | $11.18 | ||||||||||
The following table sets forth, for each year reported in the Pay Versus Performance Table, the principal executive officer or principal executive officers included in the Pay Versus Performance Table and the adjustments (i.e., amounts deducted and added) made to each principal executive officer’s Summary Compensation Table Total to determine the Compensation Actually Paid to each principal executive officer. The valuation methodology (including assumptions) used to the determine the fair value of equity awards for purposes of determining the Compensation Actually Paid to each principal executive officer is the same as set forth in footnote 3 to the Summary Compensation Table (see page 45).
| Year | PEO | Adjustments made to Summary Compensation Table Total to determine Compensation Actually Paid |
| 2022 | Stephen H. Rusckowski | $8,350,579 of stock awards and $2,874,884 of option awards was subtracted and replaced with: ● $17,879,280, representing year end fair value of stock and option awards granted in 2022 that remained unvested and outstanding at the end of 2022; ● $(3,439,186) representing the change in fair value as of the end of 2022 (from the end of the prior fiscal year) of stock and option awards granted prior to 2022 that remained unvested and outstanding at the end of 2022; |
| 2021 | ||
| 2023 Proxy Statement | 58 |
● $(9,191,272), representing the change in fair value as of the vesting date (from the end of the prior fiscal year) of stock and option awards granted prior to 2022 that vested in 2022, and ● $115,743, representing the amount of dividend equivalents paid on equity awards in the fiscal year prior to the vesting date that is not otherwise reflected in the fair value of such award or included in total compensation for the covered fiscal year. | ||
| James E. Davis | $8,542,446 of stock awards and $1,249,946 of option awards was subtracted and replaced with: ● $13,893,488, representing year end fair value of stock and option awards granted in 2022 that remained unvested and outstanding at the end of 2022; ● $(757,182), representing the change in fair value as of the end of 2022 (from the end of the prior fiscal year) of stock and option awards granted prior to 2022 that remained unvested and outstanding at the end of 2022; ● $(2,556,979), representing the change in fair value as of the vesting date (from the end of the prior fiscal year) of stock and option awards granted prior to 2022 that vested in 2022; and ● $38,512, representing the amount of dividend equivalents paid on equity awards in the fiscal year prior to the vesting date that is not otherwise reflected in the fair value of such award or included in total compensation for the covered fiscal year. | |
| 2021 | Stephen H. Rusckowski | $7,631,057 of stock awards and $2,624,978 of option awards was subtracted and replaced with: ● $23,985,936, representing year end fair value of stock and option awards granted in 2021 that remained unvested and outstanding at the end of 2021; ● $19,873,591, representing the change in fair value as of the end of 2021 (from the end of the prior fiscal year) of stock and option awards granted prior to 2021 that remained unvested and outstanding at the end of 2021; ● $979,266, representing the change in fair value as of the vesting date (from the end of the prior fiscal year) of stock and option awards granted prior to 2021 that vested in 2021; and ● $108,082, representing the amount of dividend equivalents paid on equity awards in the fiscal year prior to the vesting date that is not otherwise reflected in the fair value of such award or included in total compensation for the covered fiscal year. |
| 2020 | Stephen H. Rusckowski | $7,279,883 of stock awards and $2,500,020 of option awards was subtracted and replaced with: ● $12,461,465, representing year end fair value of stock and option awards granted in 2020 that remained unvested and outstanding at the end of 2020; ● $13,275,387, representing the change in fair value as of the end of 2020 (from the end of the prior fiscal year) of stock and option awards granted prior to 2020 that remained unvested and outstanding at the end of 2020; |
| 59 | 2023 Proxy Statement |
● $840,514, representing the change in fair value as of the vesting date (from the end of the prior fiscal year) of stock and option awards granted prior to 2020 that vested in 2020; and ● $91,523, representing the amount of dividend equivalents paid on equity awards in the fiscal year prior to the vesting date that is not otherwise reflected in the fair value of such award or included in total compensation for the covered fiscal year. |
The following table sets forth, for each year reported in the Pay Versus Performance Table, the named executive officers (other than the principal executive officer) included in the calculation of the average Compensation Actually Paid to non-principal executive officer named executive officers and the adjustments (i.e., amounts deducted and added) made to the Summary Compensation Table Total of the relevant named executive officers to determine the average Compensation Actually Paid to the relevant named executive officers. The valuation methodology (including assumptions) used to the determine the fair value of equity awards for purposes of determining the average Compensation Actually Paid to the named executive officers is the same as set forth in footnote 3 to the Summary Compensation Table (see page 45).
| Year | Other NEOs | Adjustments made to Summary Compensation Table Total to determine Compensation Actually Paid (amounts reported are averages for non-NEO PEOS together) |
| 2022 | Sam A. Samad Mark J. Guinan | $10,538,150 of stock awards and $2,950,287 of option awards was subtracted and replaced with: ● $11,363,039, representing year end fair value of stock and option awards granted in 2022 that remained unvested and outstanding at the end of 2022; ● $(1,070,571), representing the change in fair value as of the end of 2022 (from the end of the prior fiscal year) of stock and option awards granted prior to 2022 that remained unvested and outstanding at the end of 2022; ● $(10,363,713), representing the change in fair value as of the vesting date (from the end of the prior fiscal year) of stock and option awards granted prior to 2022 that vested in 2022; ● $1,801,440, representing the fair value as of the vesting date of stock and option awards granted in 2022 that vested in 2022; ● $(6,904,641), representing the fair value as of December 2021 of stock and option awards granted prior to 2022 that failed to vest in 2022; and ● $94,454, representing the amount of dividend equivalents paid on equity awards in the fiscal year prior to the vesting date that is not otherwise reflected in the fair value of such award or included in total compensation for the covered fiscal year. |
| 2021 | Mark J. Guinan James E. Davis Carrie Eglinton Manner Catherine T. Doherty | $5,587,942 of stock awards and $2,459,643 of option awards was subtracted and replaced with: ● $18,370,839, representing year end fair value of stock and option awards granted in 2021 that remained unvested and outstanding at the end of 2021; ● $17,193,322, representing the change in fair value as of the end of 2021 (from the end of the prior fiscal year) of stock and option awards granted prior to 2021 that remained unvested and outstanding at the end of 2021; ● $976,420, representing the change in fair value as of the vesting date (from the end of the prior fiscal year) of stock and option awards granted prior to 2021 that vested in 2021; and |
| 2023 Proxy Statement | 60 |
| ● $104,453, representing the amount of dividend equivalents paid on equity awards in the fiscal year prior to the vesting date that is not otherwise reflected in the fair value of such award or included in total compensation for the covered fiscal year. | ||
| 2020 | Mark J. Guinan Manuel O. Mendez | $5,868,908 of stock awards and $2,580,046 of option awards was subtracted and replaced with: ● $10,627,143, representing year end fair value of stock and option awards granted in 2020 that remained unvested and outstanding at the end of 2020; ● $11,331,221, representing the change in fair value as of the end of 2020 (from the end of the prior fiscal year) of stock and option awards granted prior to 2020 that remained unvested and outstanding at the end of 2020; ● $831,476, representing the change in fair value as of the vesting date (from the end of the prior fiscal year) of stock and option awards granted prior to 2020 that vested in 2020; and ● $145,844, representing the amount of dividend equivalents paid on equity awards in the fiscal year prior to the vesting date that is not otherwise reflected in the fair value of such award or included in total compensation for the covered fiscal year. |
For purposes of the Peer Group Total Shareholder Return column of the Pay Versus Performance Table, we have used the S&P 500 Health Care (Sector) Index, which we also use for purposes of the Stock Performance Graph in our 2022 Annual Report on Form 10-K.
Tabular List
The following tabular list sets forth those measures, which, in our assessment, represent the two financial performance measures and the two non-financial performance measures that we use to link the compensation paid to our named executive officers for fiscal year 2022 to Company performance. See Compensation Discussion and Analysis, beginning on page 24 for more information about these measures.
| Financial Performance Measures |
| Adjusted Earnings Per Share |
| Base Business Revenues |
| Non-Financial Performance Measures |
| Covid-19 Response |
| Medical Quality/Customer Experience/Employee Engagement/ESG Goals |
Descriptions of Pay Versus Performance Relationships
The following graph shows, for each of the three disclosed years: (i) the Compensation Actually Paid to the principal executive officers, (ii) the average Compensation Actually Paid to the other named executive officers and (iii) the Company’s cumulative total stockholder return (assuming an initial $100 investment).
| 61 | 2023 Proxy Statement |
The following graph shows, for each of the three disclosed years (i) the Compensation Actually Paid to the principal executive officers, (ii) the average Compensation Actually Paid to the other named executive officers and (iii) the Company’s Net Income.
The following graph shows, for each of the three disclosed years: (i) the Compensation Actually Paid to the principal executive officers, (ii) the average Compensation Actually Paid to the other named executive officers; and (iii) the Company’s Adjusted Diluted Earnings per share.
| 2023 Proxy Statement | 62 |
The following graph shows, for each of the three disclosed years: (i) the Company’s Cumulative total stockholder return; and (ii) the Cumulative total stockholder return of the Company’s peer group (assuming an initial $100 investment).
| 63 | 2023 Proxy Statement |
Audit
Proposal No. 3—4 — Ratification of Appointment of Independent Registered Public Accounting Firm
 |  | The Board of Directors recommends that you vote FOR ratification of the appointment of PwC as our independent registered public accounting firm for |
We recommend that stockholders ratify the selection of PricewaterhouseCoopers LLP (“PwC”) as the independent registered public accounting firm retained to audit the Company’s consolidated financial statements and internal control over financial reporting for 2021.2023. Although ratification is not required, the Audit and Finance Committee (the “Committee”) is submitting this proposal to stockholders as a matter of good corporate practice. If the appointment of PwC is not ratified, the Committee will consider whether it is appropriate to select another independent registered public accounting firm. Even if the selection is ratified, the Committee may select a different independent registered public accounting firm at any time during the year if it determines that a change would be in the best interest of the Company and its stockholders.
The Audit and Finance Committee is directly responsible for the appointment, compensation (including approval of the audit fee), retention and oversight of the independent registered public accounting firm retained to audit the Company’s consolidated financial statements and internal control over financial reporting. In order to assure continuing auditor independence, the Audit and Finance Committee periodically considers whether there should be regular rotation of the independent registered public accounting firm. Further, in conjunction with the mandated rotation of the independent registered public accounting firm’s lead engagement partner, the Audit and Finance Committee and its chair are directly involved in the selection of the lead engagement partner. The Committee has selected PwC as our independent registered public accounting firm for 2021.2023. PwC, or one of its predecessor firms, has served as the Company’s independent registered public accounting firm continuously since 1995.
The Audit and Finance Committee annually reviews the independence and performance of PwC in deciding whether to retain PwC or engage another firm as our independent registered public accounting firm. In the course of these reviews, the Committee considers, among other things:
| Retention of PwC |
| Tenure Benefits |
  | Higher audit quality. With over 25 years of experience with the Company, including numerous statutory audits in multiple jurisdictions, PwC has gained institutional knowledge of and deep expertise regarding our complex operations and business, accounting policies and practices, and internal control over financial reporting. |
| |
| | Efficient fee structure. The aggregate fees of PwC are competitive with peer companies because of its familiarity with our business. |
| | No onboarding or educating new auditor. Bringing on a new auditor requires a significant time commitment that could distract from management’s focus on financial reporting, internal controls and other issues. |
| | ||
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| Independence Controls |
| Thorough Audit and Finance Committee oversight. The Committee’s oversight includes private meetings with PwC (multiple times per year), a comprehensive annual evaluation by the Committee in determining whether to engage PwC, and a Committee-directed process for selecting the lead engagement partner. |
| | Limits on non-audit services. The Company requires |
| | Strong internal PwC independence process. PwC conducts periodic internal quality reviews of its audit work and rotates the lead engagement partner every five years. At the conclusion of the 2018 audit, the lead engagement partner was rotated. |
| | Strong regulatory framework. Because it is an independent registered public accounting firm, PwC is subject to PCAOB inspections, “Big 4” peer reviews, and PCAOB and SEC oversight. |
Based on this evaluation, the Audit and Finance Committee believes that PwC is independent and that the retention of PwC to serve as the Company’s independent registered public accounting firm for 20212023 is in the best interest of the Company and its stockholders. PwC representatives are expected to attend the annual meeting of stockholders,Annual Meeting, will have the opportunity to make a statement if they wish and are expected to be available to respond to appropriate stockholder questions.
Pre-Approval of Audit and Permissible Non-Audit Services
The Audit and Finance Committee has established policies and procedures to pre-approve all audit and permissible non-audit services provided by the Company’s independent registered public accounting firm. Prior to engagement of the independent registered public accounting firm for the annual audit, management submits to the Committee for approval a schedule of audit, audit-related, tax and all other services for the year. The Committee pre-approves services by category, with specific dollar value limits for each category. During the year, if it becomes desirable to engage the independent registered public accounting firm for additional services not contemplated in the original pre-approval, such services will be presented to the Committee for approval. The Committee also has delegated to its chair the authority to pre-approve services, subject to certain dollar limitations. Pre-approvals by the Committee chair are communicated to the Committee at its next scheduled meeting.
Fees and Services of PwC
Aggregate fees for professional services rendered for the Company by PwC for the years ended December 31, 20202022 and 20192021 were:
| 2020 ($) | 2019 ($) | |||||||
| Audit Fees | 3,889,300 | 3,663,680 | ||||||
| Audit Related Fees | — | — | ||||||
| Tax Fees | 88,742 | 211,193 | ||||||
| All Other Fees | 4,500 | 3,839 | ||||||
| Total Fees | 3,982,542 | 3,878,712 | ||||||
| 2022 ($) | 2021 ($) | |||||||
| Audit Fees | 3,622,200 | 3,447,587 | ||||||
| Audit Related Fees | -- | -- | ||||||
| Tax Fees | 425,273 | 315,227 | ||||||
| All Other Fees | 4,150 | 4,739 | ||||||
| Total Fees | 4,051,623 | 3,767,553 | ||||||
| |
Audit Fees were for services including professional services rendered for the audits of the Company’s consolidated financial statements;statements and COVID-19 testing for uninsured program under the CARES Act; statutory audits and subsidiary audits; assistance with review of documents filed with the SEC; and professional services rendered for the audit of the Company’s internal control over financial reporting.
Audit Related Fees. None were incurred in 20202022 or 2019.2021.
Tax Fees were for services related to tax planning and tax advice, including assistance with and representation before U.S. and certain non-U.S. authorities; and services related to tax compliance, including preparation of tax returns and claims for refunds, primarily for non-U.S. tax matters. Tax Fees related to tax planning and tax advice were $88,742$425,273 and $211,193
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$ 315,227 in 20202022 and 2019,2021, respectively. None of these fees related to tax planning for any of the Company’s directors or executive officers.
All Other Fees were for software licenses related to access to on-line technical accounting and reporting resource materials.
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Audit and Finance Committee Report
The primary purposes of the Audit and Finance Committee are: (1) to assist in the Board’s oversight of (a) the quality and integrity of the Company’s financial statements and related disclosures, (b) the independent registered public accounting firm’s qualifications and independence and (c) the performance of the Company’s internal audit function and independent registered public accounting firm; and (2) to provide advice to the Board on financing activities and other financial matters.
Management is responsible for establishing and maintaining adequate internal financial controls for the Company’s financial statements and public reporting process. Our independent registered public accounting firm, PwC, is responsible for expressing opinions on the conformity of the Company’s audited financial statements with generally accepted accounting principles and on the Company’s internal control over financial reporting.
In the performance of its oversight role, the Committee reviews the Company’s internal financial controls, financial statements and public reporting process, and regularly meets with both management and PwC to discuss these matters. The Committee also regularly meets privately with PwC and internal auditors, both of which have unrestricted access to the Committee, to discuss these matters. In addition, the Committee reviews, acts on and makes recommendations regarding the Company’s financing plans and other significant financial policies and actions.
The Committee reviewed and discussed with management and PwC the audited financial statements for the year ended December 31, 20202022 and the evaluation by PwC of the Company’s internal control over financial reporting. The Committee also discussed with PwC the matters required to be discussed by applicable PCAOB standards. In addition, the Committee received from and discussed with PwC the written disclosures and the letter required by PCAOB rules regarding the communication of PwC with the Committee concerning independence, and discussed with PwC that firm’s independence. In addition, the Committee concluded that the provision by PwC of audit and non-audit services to the Company is compatible with PwC’s independence.
Based on these reviews and discussions, the Committee recommended to the Board the inclusion of Quest Diagnostics’ audited financial statements for the fiscal year ended December 31, 20202022 in the Company’s Annual Report on Form 10-K.
Audit and Finance Committee
Tracey C. Doi
Wright L. Lassiter III
Timothy L. Main
Gary M. Pfeiffer, ChairWright L. Lassiter, IIITimothy L. MainDaniel C. Stanzione
Gail R. Wilensky
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL. PROXIES SOLICITED BY THE BOARD WILL BE VOTED FOR THIS PROPOSAL UNLESS OTHERWISE INSTRUCTED.
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Additional Action Items
Proposal No. 5 — Approval of the Employee Equity Plan
Proposal No. 4—Stockholder Proposal Regarding the Right to Act by Written Consent
 | | The Board of Directors recommends that you vote
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| 2023 Proxy Statement | 66 |
Upon the recommendation of its Compensation and Leadership Development Committee (the “Committee”), our Board has unanimously approved amendments to the Employee Plan. Our Board recommends that our stockholders approve the Employee Plan at the Annual Meeting. The Employee Plan was initially adopted in 2005 and amendments thereto were most recently approved by our stockholders in 2019. The Employee Plan allows for awards in the form of stock options, stock appreciation rights (“SARs”) and stock awards, including restricted shares, performance shares and RSUs.
As discussed in the Compensation Discussion and Analysis, long-term equity compensation plays an important part of our pay-for-performance philosophy. Equity awards under the Employee Plan benefit our stockholders by providing a means to attract, retain and reward individuals upon whom the long-term financial success of the Company largely depends. Equity awards encourage the recipients to identify their success with that of the Company’s stockholders and to increase their proprietary interest in the Company.
We are asking our stockholders to approve the Employee Plan. The principal amendments to the Employee Plan:
| ● | Increase the number of shares available for awards made under the Employee Plan by 7.6 million shares. If approved, an aggregate of about 11.4 million shares will be available for awards made under the Employee Plan, inclusive of the approximately 3.8 million shares remaining under the Employee Plan after the February 23, 2023 awards; and |
| ● | Revise the termination of the Employee Plan to the date of the Company’s 2031 annual meeting of stockholders. |
The following table provides information regarding outstanding equity awards and shares available for future awards under the Employee Plan and the Director Plan on March 1, 2023.
| Total shares underlying outstanding stock options | 4,763,789 | |
| Weighted average exercise price of outstanding stock options | $105.14 | |
| Weighted average remaining contractual life of outstanding stock options (years) | 6.26 | |
| Total outstanding and unvested performance shares at target | 453,767 | |
| Total outstanding and unvested restricted stock units | 646,911 | |
| Shares available for future awards that could be issued under Employee Plan or Director Plan | 3,837,606 |
Of the shares remaining available for future awards shown in the table above, 3,708,605 shares remain available under the Employee Plan and 129,001 shares remain available under the Director Plan. We have no equity awards outstanding other than stock options, restricted stock units and performance awards (in the form of performance shares).
If stockholders fail to approve the Employee Plan, the amendments will not be given effect, and the Employee Plan will continue as in effect prior to amendment.
Increase in Shares Available for the Employee Plan
We are amending the Employee Plan so that an aggregate of 11,437,606 shares will be available for awards made under the Employee Plan after February 23, 2023. Based on historical granting practices and the recent trading price of the Company’s common stock, if the amendment is approved, we expect the shares available under the Employee Plan to be sufficient to provide for approximately 5 additional years of awards.
Our Board believes that this increase in shares available under the Employee Plan is in the best interests of our stockholders for the following reasons.
Equity awards foster an employee ownership culture and motivate employees to create stockholder value. The use of equity as part of our compensation program is critical to the historical and continued success of Quest Diagnostics. Our equity awards foster an ownership culture among employees by aligning their financial interests with those of stockholders. Our equity awards help motivate employees to perform at peak levels because the value of these awards is linked to the Company’s long-term performance. Currently, approximately 900
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employees have equity awards under the Employee Plan. The increase in the shares available for awards will enable the Company to continue offering competitive compensation opportunities that foster our ownership culture.
The terms of our annual equity awards are designed to align with stockholder interests. The Committee determines the vesting, payment and cancellation provisions of annual equity awards. Our stock options and RSUs generally vest in one-third increments on each of the first three anniversaries of the grant date and our performance shares generally vest after three years only to the extent that we have met performance targets over a three-year period. These terms are designed to encourage employees to focus on the long-term success of the Company.
Equity awards are an important recruitment and retention tool. The Company would be at a competitive disadvantage if it could not compensate its employees using equity awards. The Company operates in an intensely competitive environment and our success is closely correlated with recruiting and retaining talented employees and a strong management team. A competitive compensation program is essential to our long-term performance. Our Board believes that equity awards are useful and sometimes necessary to attract and retain highly talented employees, particularly employees at senior management levels.
The Employee Plan and our equity awards reflect best practices. The Employee Plan and the terms of our equity awards incorporate best practices that are designed to further align the interests of participants with the interests of stockholders.
| ● | No “evergreen” provision. The Employee Plan does not contain an “evergreen” or similar provision. Instead, the Employee Plan fixes the number of shares available for future grants and does not provide for any increase based on increases in the number of outstanding shares of common stock. | |
| ● | Sole vehicle for our employee equity awards. The Employee Plan is the only Company plan under which equity-based compensation currently may be awarded to our executives and other employees | |
| ● | Fungible Share Ratio. Awards of shares or the right to receive shares (or their cash equivalent or combination of both) in the future without exercise prices are counted against the share limits of the Employee Plan as 2.65 shares of common stock. | |
| ● | No repricing of stock options or SARs. The Employee Plan prohibits the repricing or cash buyout of stock options and SARs without stockholder approval. | |
| ● | No discounted stock options or SARs. All stock options and SARs must have an exercise price or base price equal to or greater than the fair market value of the underlying Common Stock on the date of grant. | |
| ● | No liberal share counting rules. The Employee Plan prohibits the reuse of shares withheld or delivered to satisfy the exercise price of an option or SAR or to satisfy tax withholding requirements. The Employee Plan also prohibits “net share counting” upon the exercise of options or SARs. | |
| ● | Minimum vesting. Awards may not have a vesting schedule that allows for vesting prior to the first anniversary of grant, subject to limited exceptions for substitute awards and for not more than 5% of the shares available for issuance. | |
| ● | “Double trigger” change in control vesting. The Employee Plan provides that equity awards have “double trigger” vesting upon a change in control. Under this approach, the award vests in connection with a change in control only if the executive’s employment is terminated within two years after a change in control. | |
| ● | Awards subject to forfeiture/clawback. Our annual awards generally are subject to cancellation for, among other things, engaging in competitive activity, soliciting clients or employees, violating confidentiality obligations to the Company, making any false attestation under our share ownership guidelines or causing the Company to suffer financial harm or damage to its reputation through dishonesty, violation of law or the Company’s Corporate Compliance Manual or other written policies, or material deviation from the duties a participant owes to the Company. In addition, equity awards are subject to the Incentive Compensation Recoupment Policy discussed under the heading “Clawback Policy” beginning on page 50. | |
| ● | Stockholder Approval Requirements. Stockholder approval is required prior to any amendment that would (i) |
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| increase the total number of shares available for awards under the Employee Plan or the other number of share limitations described above (except for the anti-dilution adjustments described below), (ii) lower the exercise price of any stock option or SAR, or (iii) decrease the minimum exercise price at which stock options and SARs may be granted. |
Extension of the Plan Term
We are amending the Employee Plan so that it terminates at the 2031 annual meeting of stockholders, instead of the 2027 annual meeting of stockholders.
Description of the Employee Plan
The following summary describes the principal features of the Employee Plan, as amended. The summary does not purport to be complete and is qualified in its entirety by reference to the terms of the amended Employee Plan, a copy of which is attached to this proxy statement as Annex C.
Eligibility. Awards may be granted to any employee of the Company or of any corporation (or a partnership or other enterprise) in which the Company directly or indirectly either (i) owns or controls 50% or more of the outstanding shares of stock normally entitled to vote for the election of directors (or comparable equity participation and voting power) or (ii) has at least a 20% equity or similar interest and whose employees are designated as eligible to receive awards under the Employee Plan. There are more than 1,050 persons who are eligible to receive awards under the Employee Plan; however, the Employee Plan only establishes eligibility and does not confer a right to receive an award.
Shares Underlying Awards. The shares underlying awards granted under the Employee Plan are shares of the Company’s common stock, par value $0.01 per share. The closing price of the common stock on the New York Stock Exchange on March 15, 2023 was $132.85.
Stock Available for the Plan. The Employee Plan will permit up to 11,437,606 shares to be delivered pursuant to awards made after February 23, 2023. This amount is inclusive of the shares previously authorized by stockholders for the Employee Plan and that remain available for future awards.
The Employee Plan utilizes a “fungible pool” method of counting awards against the overall limit on shares available under the Employee Plan. Shares subject to stock options and SARs count against the overall share limit on the basis of one share for every share subject to the award, while shares subject to stock awards without exercise prices (which include restricted shares, performance shares and RSUs) count against the overall share limit on the basis of 2.65 shares for every share subject to the award. For example, if in the past we granted an award of 100 RSUs, we would reduce the number of shares available under the Employee Plan by 265 shares.
Share Counting Rules. Shares delivered under the Employee Plan which are forfeited back to the Company, and shares covered by an award granted under the Employee Plan which is forfeited, cancelled, expires or is settled in cash are added back to the number of shares available. However, the following shares will not be added back to the number of shares available:
| ● | Shares that are tendered or withheld to pay the exercise price of an award; | |
| ● | Shares that are tendered or withheld to satisfy the tax withholding obligations arising in connection with the vesting, exercise or settlement of an award; | |
| ● | Shares covered by a net share-settled stock option or a stock-settled SAR; and | |
| ● | Shares repurchased on the open market with cash the Company receives in payment of the exercise price of an award. |
Individual Limits. The number of shares subject to stock options and SARs that may be awarded to any individual during any fiscal year of the Company is limited to 2,000,000, and the number of shares subject to stock awards that may be awarded to any individual during any fiscal year of the Company is limited to 1,000,000.
Anti-dilution Adjustments. In the event of any change in the common stock by reason of any stock dividend or certain significant corporate transactions affecting the common stock, the number and kind of shares subject to outstanding awards under the Employee Plan, the exercise price of outstanding stock options and SARs, and the share limits referred
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to above (including the overall number of shares available for future awards) shall be appropriately adjusted to prevent substantial dilution or enlargement of the rights of participants in the Employee Plan.
Administration. The Committee administers the Employee Plan. Among other things, the Committee determines the recipients of awards, the number of shares covered by awards, and the other terms and conditions of awards (including the effects of a termination of employment), subject to the requirements of the Employee Plan. Except with regard to awards to employees subject to Section 16 of the Exchange Act, the Committee may delegate certain responsibilities and powers to one or more officers, including executive officers. In addition, as discussed in the Compensation Discussion and Analysis, the Board has delegated to the Awards Committee, currently consisting of the Chief Executive Officer, the authority to grant, under limited circumstances, equity awards to employees other than executive officers, and to make corrections to awards. The Board may revoke any such delegation at any time.
Awards. The Employee Plan permits the grant of stock options, SARs and stock awards. An award may be granted separately or with another award. Awards may also be granted in tandem, so that the exercise or vesting of one award cancels another award held by the same participant.
Minimum Vesting. The applicable vesting schedule of any award granted under the Employee Plan may not provide for vesting prior to the first anniversary of grant. In practice, our vesting periods are generally longer than the required minimum. For example, our annual awards of stock options and RSUs vest ratably over three years (with the first tranche vesting on the one-year anniversary of grant), and our performance shares have a performance period of three years and a vesting period of approximately three years. The one-year minimum vesting requirement does not apply to awards we make in substitution for awards previously granted by an entity that we acquire and that were scheduled to vest less than one year from the grant of the substitute award. In addition, up to 5% of the shares available under the Employee Plan may be covered by awards that provide for vesting in less than one year following grant; we expect to use this limited exception, if at all, for awards to new hires and in other special circumstances.
Stock Options. The Employee Plan provides the following terms and conditions for stock options:
Exercise Price. The exercise price of stock options granted under the Employee Plan cannot be less than the fair market value of a share of the Company’s common stock at the time of grant, except for awards made in connection with the assumption of, or in substitution for, outstanding awards previously granted by an acquired entity (a “substitute award”). For this purpose, fair market value means, unless the Committee determines otherwise, the mean of the high and low sales price of a share of our common stock on The New York Stock Exchange Composite List on the relevant date.
Vesting and Exercisability. The Committee has the authority to determine vesting and exercisability conditions, subject to the Employee Plan’s minimum vesting requirements.
Option Period. Each stock option will expire on the applicable date designated by the Committee but no later than ten years from the date the stock option is granted.
Stock options may be in the form of incentive stock options within the meaning of Section 422 of the Internal Revenue Code or stock options which do not qualify as incentive stock options (“nonqualified stock options”). To date, all stock options granted under the Employee Plan have been nonqualified stock options.
Stock Appreciation Rights (SARs). A SAR is a right to receive a payment in cash, shares of the Company’s common stock or a combination thereof, equal to the excess of the aggregate market price at the time of exercise of a specified number of shares over the aggregate exercise price of the SAR being exercised. The exercise price of SARs granted under the Employee Plan cannot be less than the fair market value of a share of the common stock at the time of grant, subject to the same exception for substitute awards that applies to stock options. The longest term a SAR may be outstanding is ten years. SARs may be granted separately or in combination with stock options granted under the Employee Plan.
Prohibition on Repricing. The Company may not lower the exercise price of outstanding stock options or SARs. In addition, a stock option or SAR may not be surrendered as consideration in exchange for cash or the grant of a new stock option or SAR with a lower per share exercise price or for the grant of a stock award.
Stock Awards. A stock award is a grant of shares or of a right to receive shares (or their cash equivalent or a combination thereof) in the future.
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Dividends and Dividend Equivalents. Stock awards may include the right to receive dividends or dividend equivalent payments, which either may be paid currently or credited to a participant’s account. The Committee may subject the payment or crediting of dividends or dividend equivalents to conditions or restrictions, including mandatory reinvestment of the credited amounts in common stock equivalents. RSU awards we have made to date that are subject to vesting based upon continued service have provided for the payment of dividends or dividend equivalents on a current basis without conditions. Awards of performance shares, which vest only if performance targets are satisfied, have not provided for dividends or dividend equivalents to be paid or credited during the relevant performance period.
Performance Goals. The Committee may subject stock awards to various conditions, e.g., based on achieving certain financial or non-financial performance goals. Starting in respect of 2005, we have granted stock awards that are earned based on the attainment of a performance goal over a multi-year period. The performance measures that may be used by the Committee under the Employee Plan include the following:
| • | operating profits (including EBITDA) | • | cash flow |
| • | net profits | • | customer attrition |
| • | earnings per share | • | productivity |
| • | profit returns and margins | • | workforce diversity |
| • | revenues | • | employee satisfaction |
| • | cost/expense management | • | individual executive performance |
| • | stockholder return and/or value | • | customer service |
| • | stock price | • | quality metrics |
| • | return on invested capital |
The Committee may establish performance goals based on other criteria as it deems appropriate.
The Employee Plan allows performance targets to be measured solely on a corporate, subsidiary or business unit basis or on a combination of these bases. Performance targets may reflect absolute entity performance or a relative comparison of entity performance to the performance of a peer group of entities or other external measure of the selected performance criteria. Performance goals may be adjusted after their establishment in such manner as the administrator considers necessary or appropriate and, without limiting the generality of the foregoing, profits, earnings and revenues used for any performance measurement may exclude, without limitation: gains or losses on operating asset sales or dispositions, asset write-downs, litigation or claim judgments or settlements, accruals for historic environmental obligations, effect of changes in tax law or the rate on deferred tax assets and liabilities, accruals for reorganization and restructuring programs, uninsured catastrophic property losses, the effect of changes in accounting standards, the cumulative effect of changes in accounting principles, the effect of dispositions of companies or businesses (including impact to revenue and earnings), charges related to the acquisition and integration of companies or businesses and any items that are excluded from the calculation of ordinary income (or loss) as determined in accordance with generally accepted accounting principles (which may include, without limitation, extraordinary items or significant unusual or infrequently occurring items) and/or described in management’s discussion and analysis of financial performance appearing in the Company’s annual report to stockholders for the applicable year.
Change in Control. The Employee Plan provides that equity awards have “double trigger” vesting upon a change in control. Under this approach, the vesting, payment, purchase or distribution of an award may not be accelerated by reason of a change in control for any participant unless the participant’s employment is involuntarily terminated as a result of the change in control or awards are not assumed or replaced. For these purposes, a termination of employment as a result of a change in control means involuntary termination of employment other than for “cause” or by the participant for “good reason” (each as defined in the applicable award agreement) upon or within two years after the change in control.
The Employee Plan defines a “change in control” to mean (i) a person acquiring direct or indirect beneficial ownership of Company securities representing 40% or more of the combined voting power of Company’s outstanding securities; (ii) a change in the majority of the Board (not including the election of directors whose election or nomination was approved by a majority of the then incumbent Board); or (iii) consummation of a transaction in which the Company ceases to be an independent, publicly-owned corporation, the sale or other disposition of all or substantially all of the Company’s assets, or a plan of partial or complete liquidation of the Company.
Amendments. The Board may amend the Employee Plan as it deems necessary or appropriate, but must obtain the approval of the Company’s stockholders for any amendment (i) to increase the total number of shares available
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for awards under the Employee Plan or the other number of share limitations described above (except for the anti-dilution adjustments described above), (ii) to lower the exercise price of any stock option or SAR, or (iii) to decrease the minimum exercise price at which stock options and SARs may be granted.
Term. The Employee Plan shall terminate on the date of the 2031 annual meeting of stockholders. No awards may be granted after termination, but termination shall not affect any stock awards, stock options or SARs previously granted.
Plan Benefits. Future grants under the Employee Plan, if any, that will be made to eligible participants are subject to the discretion of the Committee or the Awards Committee and, therefore, are not determinable at this time.
Federal Income Tax Consequences
The following discussion is a summary of the material U.S. federal income tax consequences of awards granted under the Employee Plan under U.S. federal income tax laws as currently in effect.
Non-Qualified Stock Options. A non-qualified stock option results in no taxable income to the optionee or deduction to the Company at the time it is granted. The optionee generally will recognize ordinary taxable income upon exercise of the non-qualified stock option, in an amount equal to the excess of the fair market value of the shares received at the time of exercise (including any option shares withheld by the Company to satisfy tax withholding obligations) over the aggregate exercise price paid for the shares, and the Company will generally be allowed a deduction for the same amount (subject to Section 162(m) of the Internal Revenue Code). Upon disposition of the shares received upon exercise of the non-qualified stock option, the optionee will recognize long-term or short-term capital gain or loss, depending upon the length of time he or she held such shares. Special rules may apply if an optionee uses previously owned shares to pay the exercise price of a stock option.
Incentive Stock Options. An incentive stock option results in no taxable income to the optionee or deduction to the Company at the time it is granted or exercised. The optionee, however, may be required to recognize a preference item for alternative minimum tax purposes upon exercise of the ISO equal to the fair market value of the shares issued upon exercise over the exercise price. The optionee will recognize long-term capital gain or loss on a disposition of shares acquired upon exercise of an ISO, provided that the optionee does not dispose of the shares within two years from the date the ISO was granted and within one year after the shares were acquired by the optionee. If the optionee satisfies both of the holding periods described above, then the Company will not be allowed a deduction by reason of the exercise of the ISO. If the optionee disposes of the shares acquired upon exercise before satisfying the holding period requirements discussed above (a “disqualifying disposition”), his or her gain recognized on the disqualifying disposition will be taxed as ordinary income to the extent of the difference between the fair market value of the shares on the date of exercise and exercise price of the ISO, and the Company will be entitled to a deduction in this amount (subject to Section 162(m) of the Internal Revenue Code). The gain (if any) in excess of the amount recognized as ordinary income on a disqualifying disposition will be long-term or short-term capital gain, depending upon the length of time the optionee held the shares.
Stock Appreciation Rights. The grant of a SAR will not be a taxable event to the participant. Upon exercise, the participant will recognize ordinary income in an amount equal to the fair market value of the shares or cash distributed to the participant. A corresponding deduction will be allowable to the Company (subject to Section 162(m) of the Internal Revenue Code).
Stock Awards. The U.S. federal income tax consequences of stock awards depend on the form of the award.
Restricted Shares. A participant who is awarded restricted shares will not be taxed at the time of grant unless the shares are either substantially vested at grant or the participant makes an election with the Internal Revenue Service pursuant to Section 83(b) of the Internal Revenue Code as discussed below. Upon lapse of the risk of forfeiture or restrictions on transferability applicable to the restricted shares, the participant will be taxed at ordinary income tax rates on the then fair market value of the shares. A deduction corresponding to the amount of income recognized generally will be allowable to the Company (subject to Section 162(m) of the Internal Revenue Code). The participant’s tax basis in the shares will be equal to the ordinary income recognized. Upon subsequent disposition of the shares, the participant will realize long-term or short-term capital gain or loss, depending on how long the participant holds the shares before disposing of them.
Pursuant to Section 83(b) of the Internal Revenue Code, a participant may elect within 30 days of receipt of an award of restricted shares to be taxed at ordinary income tax rates on the fair market value of the shares comprising such award at the time of award (determined without regard to any restrictions which may lapse) less any amount
| 2023 Proxy Statement | 72 |
paid for the shares. In that case, a deduction corresponding to the amount of income recognized will be allowable to the Company (subject to Section 162(m) of the Internal Revenue Code). In addition, the participant will acquire a tax basis in the shares equal to the ordinary income that the participant recognizes at the time of grant. No tax will be payable upon the lapse or release of the restrictions or at the time the shares first become transferable, and any gain or loss upon subsequent disposition will be a capital gain or loss. In the event of a forfeiture of shares of common stock with respect to which a participant previously made a Section 83(b) election, the participant will not be entitled to a loss deduction.
Performance Shares. Performance shares are earned based upon the attainment of performance goals specified at the time of grant. A participant who receives an award of performance shares will be taxed following the end of the performance period, when the number of shares that have been earned has been determined and the shares are transferred to the participant; the amount of income recognized will equal the then fair market value of the shares that have been earned. The Company will be entitled to a corresponding deduction at that time (subject to Section 162(m) of the Internal Revenue Code). The participant’s tax basis in the shares will equal the amount taxed as ordinary income, and on subsequent disposition the participant will realize long-term or short-term capital gain or loss, depending on how long the participant holds the shares before disposing of them.
RSUs. A participant who receives RSUs will be taxed at ordinary income tax rates on the then fair market value of the shares of common stock (or if the RSUs are settled by delivery of cash, on the amount of cash) distributed at the time of settlement of the RSUs. A corresponding deduction will be allowable to the Company at that time (subject to Section 162(m) of the Internal Revenue Code). The participant’s tax basis in the shares will equal the amount recognized as ordinary income, and on subsequent disposition the participant will realize long-term or short-term capital gain or loss, depending on how long the participant holds the shares before disposing of them.
Section 162(m). Section 162(m) of the Internal Revenue Code generally limits the federal income tax deduction for compensation paid to the Chief Executive Officer, Chief Financial Officer and the three other most highly compensated executive officers of a publicly held corporation to $1 million per fiscal year, as well as individuals who previously held these positions. The Company reserves the right to pay its employees, including participants in the Employee Plan, amounts which may not be deductible under Section 162(m) or other provisions of the Internal Revenue Code.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL. PROXIES SOLICITED BY THE BOARD WILL BE VOTED FOR THIS PROPOSAL UNLESS OTHERWISE INSTRUCTED.
Proposal No. 6—Stockholder Proposal Regarding Greenhouse Gas Reduction and Transition Plan
John Chevedden, 2215 Nelson Ave., No. 205, Redondo Beach, Calif. 90278, owner of 50 shares of the Company’s common stock, has notified us that he intends to present the following proposal and related supporting statement at the Annual Meeting.
Proposal 46 – Shareholder RightGreenhouse Gas Reduction and Transition Plan
WHEREAS: The Intergovernmental Panel on Climate Change has advised that greenhouse gas (GHG) emissions must be halved by 2030 and reach net zero by 2050 to Actlimit global warming to 1.5⁰C. Every incremental increase in temperature above the Paris Agreement’s goal of holding warming to 1.5⁰C will entail increasingly severe physical, transition, and systemic risks for companies and investors alike.
In its 2022 10-K, Quest Diagnostics noted the physical risks of extreme weather events caused by Written Consent
Shareholders request that our board of directors take the necessary steps to permit written consent by the shareholders entitled to cast the minimum number of votes that would be necessary to authorize an action at a meeting at which all shareholders entitled to vote thereon were presentclimate change on its facilities, employees, consumers, and voting. This includes shareholder ability to initiate any appropriate topic for written consent.conduct core business operations. Despite acknowledging these risks, the Company’s mitigation strategy falls short of what is needed to shield the Company and its investors from climate-related risks.
This proposal topic won 95%-support at Dover CorporationThe Company does not have specific nor quantified GHG reduction targets, citing only further consideration of fleet electrification, analysis of risks and 88%-support at AT&T. It also won our 49% support at our 2015 annual meeting. This 49% vote would likely have been over 50% had management not done a lavish 2015 special solicitation to prop up its vote on executive pay. A proxy solicitor had recommended voting against Quest Diagnostics executive pay.opportunities, and improved measurement of Scope 1 and 2 emissions.
It is particularly important to have a shareholder right to act by written consent due to our lame right to call for a special shareholder meeting. It takes 24% of the shares, that typically cast a DGX ballot, to call a special meeting. And the owners of 24% of shares must subtract all shares that that have not been held for an unbroken one-year. Thus the owners of 24% of shares owned for an unbroken one-year might discover that they own 50% of DGX shares after they include all their shares regardless of length ownership. A potential 50% barrier is not good for shareholders.
A shareholder right to act by written consent affords DGX management strong protection for a management holdout mentality during the current rapid changing business environment. Due to the low shareholder participation in annual meeting elections any action taken by written consent would still need more than 60% supermajority approval from the shares that normally cast ballots at the DGX annual meeting to equal a majority from the DGX shares outstanding.
A cornerstone of the 2020 management argument regarding written consent was that with special shareholder meetings shareholders “have an opportunity to deliberate.” This has been completely blown out of the water in 2020.
With the near universal use of tightly controlled online annual shareholder meetings, which can be only 10-minutes of stilted formalities, shareholders are severely restricted in deliberating and making their views known because all challenging questions and comments can be screened out by management. And management is free to have its friends opine in support of management.
For example the Goodyear online shareholder meeting was spoiled by a trigger-happy management mute button that was used to quash constructive shareholder criticism. AT&T, with 3000 institutional shareholders, would not even allow shareholders to speak at its online shareholder meeting.
And Mr. Daniel Stanzione, Chairman of the DGX Governance Committee in 2015 and also in 2020, seemed to be clueless of the fact that written consent can be structured so that all shareholders receive notice.
Please vote yes:
Shareholder Right to Act by Written Consent - Proposal 4
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| 73 | 2023 Proxy Statement |
The company trails its competitors in setting GHG reduction targets and managing risks. Abbott Laboratories, Thermo Fisher Scientific, and Labcorp have all set, or committed to setting, near-term science-based targets with the Science Based Targets Initiative (SBTi) that cover scope 1-3 emissions. Thermo Fisher Scientific has also committed to setting a long-term target through SBTi.
By setting science-based targets, the Company may reap benefits from increased efficiency, lower energy costs, more resilient supply chains, and better preparation for climate-related regulations. Investors increasingly seek disclosure of how companies are addressing climate risk and planning to transition their business models to ones that align with limiting warming to 1.5⁰C. To assist companies in developing viable transition plans, groups including We Mean Business, CDP, the Global Financial Alliance for Net Zero, and the Task Force on Climate-Related Disclosures have provided guidance.
RESOLVED: Shareholders request that Quest Diagnostics Inc., within a year, issue near and long-term science-based greenhouse gas reduction targets aligned with the Paris Agreement’s ambition of limiting global temperature rise to 1.5 ⁰C and summarize plans to achieve them. The targets should cover the Company’s full range of operational and supply chain emissions.
SUPPORTING STATEMENT: In assessing targets, we recommend:
Taking into consideration approaches used by advisory groups like the Science-Based Targets initiative;
Developing a transition plan that shows how the Company plans to meet its goals, taking into consideration criteria used by advisory groups; and
Consideration of supporting targets for renewable energy, energy efficiency, fleet electrification and other measures deemed appropriate by management.
OUR BOARD RECOMMENDS THAT YOU VOTE AGAINST THIS PROPOSAL.
 | The Board of Directors recommends you vote AGAINST this proposal. |
The Board has carefully considered the proposal and believesdoes not believe that action by written consentit is unnecessary given our strong Board accountability, stockholder rights and stockholder engagement, the potential for abuse, disenfranchisement and confusion of stockholders, and our strong corporate governance practices. Accordingly, the Board recommends voting against the proposal.
Strong Board Accountability, Stockholders Rights and Stockholder Engagement
The Board has demonstrated its responsiveness and accountability to stockholder concerns through implementation of strong stockholder rights and extensive stockholder engagement. The Company has taken substantial steps to give stockholders the ability to participate in a robust manner. For example, in 2016, after careful consideration and discussions with stockholders, the Board proactively amended our by-laws to give stockholders a right to proxy access for director nominations. Our proxy access provision is in line with governance best practices by allowing a stockholder, or a group of up to 20 stockholders, owning at least 3% of our outstanding common stock continuously for at least three years, to nominate and include in our proxy materials director nominees constituting up to 20% of the Board or two directors.
In addition, stockholders who together hold 20% or more of our outstanding stock are able to call a special meeting of stockholders. This right provides stockholders with the ability to call a meeting of stockholders between regular annual meetings where all stockholders would be able to consider and deliberate on a matter important to the stockholders. The threshold to call a special meeting is less than half the threshold required under this proposal. Any group of stockholders with holdings sufficient to act by written consent under this proposal is already able to call a special meeting of stockholders.
In addition, our active stockholder engagement and outreach provides stockholders with robust access to management and (as noted in our Corporate Governance Principles) directors. Our engagement efforts help us to learn our stockholders’ priorities, perspectives and concerns, and enable us to proactively and effectively address important issues and concerns voiced by our stockholders.
Annual and Special Meetings Include Important Transparency Safeguards for All Stockholders, but Action by Written Consent has the Potential for Stockholder Abuse, Disenfranchisement and Confusion
The Board believes that permitting shareholder action by written consent would circumvent the deliberative process that is the hallmark of the stockholder meeting. The Board believes a properly called stockholder meeting is the forum where actions by stockholders should occur. Core principles of the Company’s engagement with its stockholders are good governance and transparency, and actions by written consent are inconsistent with these principles.
Actions by written consent could potentially disenfranchise stockholders by denying them the ability to vote or otherwise have a say on matters that should be properly presented to stockholders. Stockholders with only a majority of outstanding stock would be able to act on a matter without giving stockholders, the Board or management the opportunity to express their views, ask questions and make opposing arguments. In addition, an action by written consent eliminates the need for advance notice of a proposed stockholder action. Therefore, certain stockholders may not even know about a possible action by written consent until long after the action has already been taken, without a chance to express a perspective on the action. The proxy statement and any soliciting materials that are distributed to stockholders in advance of a special or annual meeting provide stockholders with sufficient time and opportunity to consider the matters presented. This process ensures that all stockholders transparently receive accurate and complete information on important matters presented for stockholder consideration.
The Board also believes that a written consent right has the potential to create substantial confusion for stockholders. Permitting actions by written consent could permit a number of different groups of stockholders to seek consents from stockholders whenever they want and as frequently as they choose on any number of issues that may only benefit a small number of stockholders, and are not in the best interests of the Company. TheseCompany and its stockholders at this time.
The Company supports the global effort to address climate change. We understand and recognize our responsibility to reduce our greenhouse gas emissions (“GHG emissions”) and are seeking and developing ways to transition our business to a lower carbon footprint. We are actively making efforts to reduce our GHG emissions, and we provide comprehensive and detailed annual sustainability disclosures to illustrate our progress. We currently are seeking to understand, and prepare for, proposed changes in regulatory requirements and their impact on our Company as we continue to develop our sustainability plans. We believe that taking a thoughtful approach, that takes into consideration the importance of continuing to provide patient care and providing stockholder groups could even simultaneously seek stockholder supportvalue, rather than setting targets without careful planning and consultation with our business partners, would best assist the Company in determining the type and scope of targets or other methods by which we may further reduce our carbon footprint.
We continue to demonstrate our commitment to environmental sustainability for actionsthe benefit of all stakeholders.
We believe that the protection of the environment is important. We are inconsistent or, even, contradictory. This could create substantial confusion among stockholders and would impose significant administrative and financial burdenscommitted to reducing the negative impact our operations may have on the Company. Actionsenvironment, and we are actively taking steps to improve the energy efficiency of our operations and reduce our GHG emissions. Each year, we publish a Corporate Responsibility Report that discusses our commitment to environmental sustainability and steps that we have taken in support of that commitment.
Our 2021 Corporate Responsibility Report includes disclosures under the Sustainability Accounting Standards Board (“SASB”) framework. Our report also disclosed our Scope 1 and Scope 2 GHG emissions, as well as six categories of Scope 3 emissions in North America and Latin America. We also reported on our water usage and waste. Our report discussed efforts to reduce GHG emissions, including energy efficiency measures at our facilities such as laboratory consolidation, laboratory testing platform consolidations, LED lighting retrofits, route optimization and our continuing qualification for the Environmental Protection Agency’s Green Power Partnership by written consent may facilitateexceeding 7% renewable energy use. Our report discussed our fleet conservation initiative, which we estimate resulted in a reduction of 1.8 billion pounds of CO2 and the exertionelimination of inappropriate influence by a groupmore than 1,100 surplus vehicles in the last 15 years. Further, our report described our electric vehicle pilot project, including installing charging stations at laboratories, and how we actively work with our network of stockholders, including short-termsuppliers to develop products and processes that can reduce waste across our operations. Our report also provides examples of our efforts to reduce or special interest stockholders, who have no fiduciary dutieseliminate waste and to or input from the other stockholders. Under the proposal, proponents of an action by written consent would not be required to satisfy any holding requirementsreduce water usage.
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| 2023 Proxy Statement | 74 |
We have also taken steps to strengthen our sustainability reporting. For example, our Scope 1 and Scope 2 GHG emissions were assured by an independent third party. This step demonstrates our commitment to strengthening our environmental sustainability reporting. We plan to continue to increase the transparency and quality of our reporting as we develop our plan to be responsive to the coming requirements.
During 2022, we also undertook additional actions in support of our sustainability program. For example, we achieved ISO 14001 certification, an international standard for an environmental management system that is designed to improve our environmental performance through more efficient use of resources and reduction of waste, for our esoteric laboratory facility at San Juan Capistrano, California, and plan, by 2026, to achieve the certification for three additional laboratory facilities. We commenced ASHRAE Level 2 energy audits to identify energy conservation measures, and desktop energy and water audits to identify additional conservation opportunities. We also commenced work with respectan external provider on identifying water savings strategies.
During 2022, we also developed new sustainability initiatives. We plan to expand our electric vehicle pilot to include three additional lab locations by 2025. In addition, we plan to transition 50% of our vehicle fleet to electric or hybrid engines by 2026. By 2025, we plan to implement a waste-to-energy strategy to divert from landfills waste from several of our laboratory locations. We also plan by 2025 to reduce or eliminate shipped medical waste from at least four of our laboratory locations by installing on-site treatment technology.
We currently are seeking to understand, and prepare for, proposed changes in law and their impact on our Company as we continue to develop our sustainability plans.
In March 2022, the SEC proposed comprehensive and wide-ranging rules that would require the Company to provide extensive disclosures related to its climate risks and opportunities. These disclosures include disclosures related to targets and goals, Scope 1 and Scope 2 emissions supported by a third-party attestation, and possible disclosures of Scope 3 emissions, along with complex financial statement disclosures and additional disclosures focused on climate governance and risk oversight. Recently proposed legislation in California would require companies like ours operating in California to provide comprehensive GHG emission disclosures.
In November 2022, the federal government proposed a comprehensive new rule that would require large federal government contractors to disclose, on an annual basis, their GHG emissions and describe climate-related risks. The proposal also would require some contractors to adopt science-based targets for the reduction of GHG emissions. As a company that does business with federal agencies, Quest Diagnostics would be subject to these new rules.
Additionally in November 2022, the European Union adopted the Corporate Sustainability Reporting Directive (“CSRD”), which imposes new, comprehensive ESG-focused disclosure requirements on companies that are doing business in the European Union. The disclosure requirements include climate-related matters, including risks, targets and emissions disclosures, but also extend to other social and governance matters. Our operations in the European Union could potentially subject us to the CSRD requirements.
The scope and timing of the proposed changes are unclear. While these changes are not in effect, we have committed resources to, and focused on, understanding the challenges that they raise related to our common stockcompliance with these comprehensive, and possibly conflicting, requirements. We are focused on, among other issues, our ability to collect the necessary data; the requisite disclosure and internal control procedures necessary to reliably report the required information; what assurance processes we may need to implement; and the necessary governance and oversight.
We believe that a thoughtful approach would best assist the Company in determining the type and scope of targets or provide certain information about themselves. Such proponents wouldother methods by which it may further reduce GHG emissions.
We strive for meaningful, enduring change that will be enabledimpactful to take significant corporateour patients, employees, business partners, communities and stockholders. We have adopted plans and taken actions, which may be inconsistenthighlighted above, designed to reduce our GHG emissions, and we intend to continue to pursue a GHG emission reduction strategy in a manner consistent with the long-term best interestsdemands of patient care. There are, however, significant factors impacting our efforts to reduce emissions which we cannot control. For example, the COVID-19 pandemic has had a dramatic impact on our people, operations and priorities, altering the focus of our business by being placed on the frontlines of the Company. The Board believeshealthcare emergency faced by the written consent procedure is more appropriate for a closely-held corporation with a small numberUnited States and the rest of shareholders, and not for a widely-held public company such as the Company.world.
Strong Corporate Governance Practices
The Board maintains strong corporate governance practices and regularly reviews them. The Board believesOur approach to sustainability includes learning from our past initiatives. We believe that the strong corporate governance practices and stockholder rights provide the appropriate means to advance stockholders’ interest without the potential risk of abuse or disenfranchisement under the action by written consent process. Our corporate governance program includes the following leading practices:be responsible to our
| 2023 Proxy Statement |
stockholders, our experience should inform our future efforts. For example, we believe that decisions about resource allocation, changes in strategy and the timing of change should consider the demands and responsibility of patient care, available technology and developments around us. Given the potential magnitude of the changes to our organization and operations, we believe that rushing to finalize targets in the condensed time frame the proponent suggests would not enable us adequately to reflect our best learnings and the demands of the changing laws.
In addition,As we transition to a prior shareholder proposal regarding written consent failedpost-pandemic period and operating structure, we are evaluating potential changes to receiveour sustainability goals, including GHG emission reduction efforts. We believe that a majoritythoughtful approach to setting targets would be in the best interest of stockholder support.all stakeholders. We believe that it would be imprudent, in this evolving and uncertain environment, to alter our present approach and hurriedly commit to targets that may be effectively superseded by changes in law, or may be unrealistic. We believe that pursuing our present path, including better understanding our ability to effect change in our operations and our organization, and the time frames it will take to achieve these changes consistent with the demands of patient care, as well as the attendant investments and costs, is in the best interest of the Company and our stockholders and other stakeholders.
For all the above reasons, the Board recommends that stockholders vote AGAINST Proposal No. 4.6.
In addition, the Board disagrees with a number of the statements that the proponent has made in connection with his proposal. The Board, however, believes that these statements are not relevant to the proposal being considered and that any discussion of those statements would not be helpful to stockholders in determining how to vote on the proposal. As a result, the Board believes there is no reason to address these statements.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST THIS PROPOSAL. PROXIES SOLICITED BY THE BOARD WILL BE VOTED AGAINST THIS PROPOSAL UNLESS OTHERWISE INSTRUCTED.
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FREQUENTLY ASKED QUESTIONS
| 1. | Who can vote at the Annual Meeting? |
1. What is
Holders of our common stock as of the close of business on the record date timewill be entitled to vote at the Annual Meeting and placeat any adjournment or postponement of the Annual Meeting?Meeting. March 20, 2023 is the record date.
| 2. | How many votes can be cast by all stockholders? |
On the record date, there were 111,877,860 shares of our common stock outstanding, each of which is entitled to one vote for each matter to be voted on at the Annual Meeting.
| 3. | How many votes must be present to hold the Annual Meeting? |
We willneed the holders of shares representing a majority of the votes that may be cast at the Annual Meeting, present in person or represented by proxy, to hold the Annual Meeting on May 21, 2021 at 10:30 a.m. Eastern Time, exclusively by webcast at www.cesonlineservices.com/dgx21_vm. No physical meeting will be held.Meeting. We encourageurge you to access the meeting prior to the start time, leaving ample time for check-in. Access to the online meeting will begin at 10 a.m. Eastern Time. You will be ablesubmit a proxy even if you plan to attend the meeting, vote electronically, and submit questions during the meeting at www.cesonlineservices.com/dgx21_vm.
2. How do I virtually attendAnnual Meeting. That will help us to know as soon as possible that sufficient shares will be present to hold the Annual Meeting?Meeting.
The Annual Meeting will take place online at www.cesonlineservices.com/dgx21_vm.
| 4. | How do I vote? |
If you are a stockholderholder of record (meaning, if(that is, you hold your shares in your name throughwith the Company’s transfer agent), you may register to attend by visiting www.cesonlineservices.com/dgx21_vm no later than 24 hours before the Annual Meeting. Follow the directions to register for the Annual Meeting. Have available your proxy card or Important Notice Regarding the Availability of Proxy Materials; they contain the 11-digit control number needed to complete your registration.
If you are a beneficial stockholder (meaning, if you hold your shares through a broker, bank or other nominee), you may register to attend by visiting www.cesonlineservices.com/dgx21_vm no later than 24 hours before the Annual Meeting. Follow the directions to register for the Annual Meeting. Have available your voting instructions form, Important Notice Regarding the Availability of Proxy Materials or other communication; they contain your control number needed to complete your registration.
Stockholders that register to attend the Annual Meeting will receive an e-mail prior to the meeting with a link and instructions for attending the Annual Meeting.
3. How do I vote my shares?
If you are a stockholder of record, you may cause your shares to be voted by submitting your proxy byvia the Internet, mail or telephone or by attending the Internet.Annual Meeting and voting in person. The directions for internet, mailtelephone and telephoneInternet proxy submission are on your proxy card. If you choose to submit your proxy on the Internet, before the Annual Meeting, go to www.cesvote.com. If you choose to submit your proxy by mail, simply mark, sign and date your proxy card and return it in the enclosed postage pre-paid envelope. You can also submit your proxy by calling 1-888-693- 8683.1-888-693-8683. If you return a signed proxy card without indicating your vote, your shares will be voted according to the Board’s recommendations. To vote during the Annual Meeting, register to attend the Annual meeting (see Question 2 – “How do I virtually attend the Annual Meeting?”) and click on the ‘Stockholder Ballot’ link that will be available during the Annual Meeting under the ‘Meeting Links’ section of the virtual meeting website,
If you arehold your shares in street name (that is, through a beneficial stockholder,broker, bank or other holder of record), please follow the voting instructions forwarded to you by your bank, broker or other holder of record. ToIf you want to vote during the Annual Meeting, register to attend the Annual Meeting (see Question 2 – “How do I virtually attend the Annual Meeting?”) and click on the ‘Stockholder Ballot’ link that will be available during the Annual Meeting under the ‘Meeting Links’ section of the virtual meeting website. Please note that if you are a beneficial owner and wish to votein person at the Annual Meeting, you must obtain a legal proxy in pdf or image file format, from theyour broker, bank brokerage firm or other nominee holding your shares givingholder of record authorizing you the right to vote your shares, and present it with your online ballot duringbring the proxy to the Annual Meeting.
To reduce our administrative and postage costs, we ask that you submit a proxy through the Internet or by telephone, both of which are available 24 hours a day.
4. Will I be able to ask a question during the Annual Meeting?
Yes, all stockholders attending the Annual Meeting will be able to submit a question during the meeting. You must be logged in to the virtual meeting at www.cesonlineservices.com/dgx21_vm, type your question into the “Ask a Question” box and click ���submit’. If your question is properly submitted during the meeting, your question may be answered in the
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meeting or we may hold your question and respond to it after the meeting. Questions on similar topics may be combined and answered together.
5. What if I encounter technical difficulties or have trouble accessing the Annual Meeting?
If you have difficulty accessing the Annual Meeting, please follow the instructions contained in the reminder email you will receive the evening before the Annual Meeting. We will have technicians available to assist you.
6. What if the Company encounters technical difficulties during the Annual Meeting?
If we experience technical difficulties during the Annual Meeting (e.g., a temporary or prolonged power outage), our Chairman will determine whether the Annual Meeting can be promptly reconvened (if the technical difficulty is temporary) or whether the Annual Meeting will need to be reconvened at a later time or another day (if the technical difficulty is more prolonged). In any situation, we will promptly notify stockholders of the decision via www.cesonlineservices.com/dgx21_vm.
7. Who can vote at the Annual Meeting?
Holders of our common stock as of the close of business on March 22, 2021, the record date, will be entitled to vote at the Annual Meeting and at any adjournment or postponement of the Annual Meeting.
8. How many votes can be cast by all stockholders?
On the record date, there were 131,224,590 shares of our common stock outstanding, each of which is entitled to one vote for each matter to be voted on at the Annual Meeting.
9. How many votes must be present to hold the Annual Meeting?
We need a majority of the votes that may be cast at the Annual Meeting, present in person or represented by proxy, to hold the Annual Meeting. We urge you to submit your proxy even if you plan to attend the Annual Meeting.
10. How many votes will be required to elect directors?
Each director will be elected by a majority of votes cast with respect to such director. A “majority of votes cast” means that the number of votes cast “for” a director nominee exceeds the number of votes cast “against” that director nominee. Under Delaware law, if an incumbent director (or the directorsuccessor thereof) is not elected at the Annual Meeting, the director will continue to serve on the Board as a “holdover” director. As required by the Company’s by-laws, each incumbent director nominee has submitted an irrevocable letter of resignation as director that becomes effective if he or she is not elected by the stockholders and the Board accepts the resignation. If aan incumbent director is not elected, the Governance Committee will consider the director’s resignation and recommend to the Board whether to accept or reject the resignation or take other action. The Board will decide whether to accept or reject the resignation or take other action and publicly disclose its decision and, if it rejects the resignation, the rationale behind the decision, within 120 days after the election results are certified.
11. How many votes will be required to adopt the other proposals?
| 6. | How many votes will be required to adopt the other proposals? |
The ratification of the appointment of PwC, approval of the Employee Plan and approval of the stockholder proposal requireeach requires the affirmative vote of a majority of the shares of common stock present in person or represented by proxy at the Annual Meeting and entitled to vote thereon. The approval of the advisory resolution to approve executive compensation and the advisory vote to recommend the frequency of the executive compensation advisory vote each requires the affirmative vote of a majority of votes cast with respect to such proposal. A “majority of votes cast” means that the number of votes cast “for” a proposal exceeds the number of votes cast “against” that proposal.
| 77 | 2023 Proxy Statement |
| 7. | Can I change or revoke my proxy? |
12. Can I change or revoke my proxy?
Yes. You may revoke your proxy before your shares are voted by:
| | What if I vote to abstain? |
13. What if I vote to abstain?
Shares voting “abstain” on the ratification of the appointment of PwC, approval of the Employee Plan and approval of the stockholder proposal will be counted as present for purposes of that proposal and will have the effect of a vote against the proposal. Shares voting “abstain” for any nominee for director, and the advisory vote to approve executive compensation and the advisory vote to recommend the frequency of the executive compensation advisory vote will be excluded entirely from the applicable vote and will have no effect on the election of that nominee or matter, as the case may be.
14. What happens if I do not vote?
| 9. | What happens if I do not vote? |
If you are a record holder and do not vote your shares or submit a proxy with respect to your shares, your shares will not be voted.
If you hold your shares in street name (including in the Employee Stock Purchase Plan), you must instruct the record owner how to cast your vote if you want your shares to count for the election of directors, the advisory resolution to approve executive compensation, the advisory vote to recommend the frequency of the executive compensation advisory vote, approval of the Employee Plan or approval of the stockholder proposal. If you do not provide instructions regarding how to vote on these matters, no vote will be cast on your behalf. Brokers, however, have discretion to vote uninstructed shares on the ratification of the appointment of PwC.
If you are a participant in the 401(k) Plan and you do not submit voting instructions in respect of shares held on your behalf in such plan, then, except as otherwise required by law, the plan trustee will vote your shares in the same proportion as the voting instructions that it receives from other participants.
15. What if there is voting on other matters?
| 10. | What if there is voting on other matters? |
We do not know of any other matters that may be presented for action at the meeting other than those described in this proxy statement. If any matter not described in the proxy statement properly is brought before the meeting, the proxy holders will have the discretion how to vote your shares.
| 11. | How can I attend the Annual Meeting? |
16. What happens if
Only stockholders as of the record date (or their proxy holders) may attend the Annual Meeting. All stockholders seeking admission to the meeting must present photo identification. If you hold your shares in street name (including in the Employee Stock Purchase Plan), to gain admission to the meeting you also must provide proof of ownership of your shares as of the record date. Proof of ownership may be a letter or account statement from your broker, bank or other holder of record. If you need directions to the Annual Meeting, is postponed or adjourned?please call Investor Relations at 973-520-2900.
| 12. | What happens if the Annual Meeting is postponed or adjourned? |
Your proxy will still be valid and may be voted at the postponed or adjourned annual meeting.Annual Meeting. You will still be able to change or revoke your proxy until it is voted.
17. Who is soliciting my vote and will pay the expenses incurred in connection with the solicitation?
| 13. | Who is soliciting my vote and will pay the expenses incurred in connection with the solicitation? |
The Board is soliciting your vote. The Company pays the cost of preparing proxy materials and soliciting your vote. Our directors, officers and employees, who will receive no additional compensation for soliciting, may solicit proxies on our behalf by telephone, mail, electronic or facsimile transmission, in person or by other means of communication. We also have hired D. F. King & Co., Inc. to solicit proxies and for these services we will pay an estimated fee of $13,500,$16,500, plus expenses.
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| 14. | Can I receive Annual Meeting material via electronic delivery? |
18. Can I receive Annual Meeting material via electronic delivery?
We are furnishing this proxy statement and form of proxy and voting instructions in connection with our solicitation of proxies on behalf of the Board for the Annual Meeting. This proxy statement and the Annual Report are available on our Investor Relations website at www.QuestDiagnostics.com. You can save the Company postage and printing expense by consenting to access these documents over the Internet. If you consent, you will receive notice next year when these documents are available with instructions on how to view them and submit voting instructions. Your consent to electronic delivery of materials will remain in effect until you revoke it. If you choose electronic delivery, you may incur costs, such as cable, telephone and Internet access charges, for which you will be responsible.
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19. 15.Whom should I call with other questions or to obtain a paper copy of this document or the Annual Report on Form 10-K?
If you have additional questions about this proxy statement or the Annual Meeting or would like additional copies of this document or our 20202022 Annual Report on Form 10-K at no charge, please contact Investor Relations, Quest Diagnostics Incorporated, 500 Plaza Drive, Secaucus, New Jersey 07094; email address: Investor@QuestDiagnostics.com; telephone 973-520-2900. The Company’s main telephone number is 973-520-2700. We will promptly deliver to you the documents that you request.
20. How do I submit a proposal for the 2022 annual meeting of stockholders?
| 16. | How do I submit a proposal for the 2024 annual meeting of stockholders? |
Stockholders intending to present a proposal at the 20222024 annual meeting and have it included in the Company’s proxy statement for that meeting must submit the proposal in writing to William J. O’Shaughnessy, Jr., Corporate Secretary, 500 Plaza Drive, Secaucus, New Jersey 07094. We must receive your proposal by the close of business on December 10, 2021.8, 2023.
Stockholders intending to present a proposal at the 20222024 annual meeting, but not to include the proposal in the Company’s proxy statement, or to nominate a person for director (other than proxy access nominations, which are discussed below), must comply with the requirements set forth in our by-laws. The by-laws require, among other things, that our Corporate Secretary (at the address noted above) receive written notice from the record stockholder of intent to present such proposal or nomination no more than 120 days and no less than 90 days prior to the anniversary of the preceding year’s annual meeting of stockholders. Therefore, the CompanyCompany’s Corporate Secretary must receive notice of such a proposal or nomination for the 20222024 annual meeting of stockholders no earlier than January 21, 202218, 2024 and no later than February 20, 2022.17, 2024. The notice must contain the information required by theour by-laws, a copy of which is available on our website at www.QuestDiagnostics.com or upon request from our Corporate Secretary.
If you intend to nominate a director outside of the proxy access process (described below) and solicit proxies in support of such director nominee(s) at the 2024 annual meeting, you must also provide the notice and additional information required by Rule 14a-19 under the Exchange Act and our by-laws to our Corporate Secretary (at the address noted above), no earlier than January 18, 2024 and no later than February 17, 2024.
Our by-laws provide a proxy access right to permit a stockholder, or a group of up to 20 stockholders, owning at least 3% of our outstanding common stock continuously for at least three years, to nominate and include in our proxy materials director nominees constituting up to 20% of the Board of Directors or two directors, whichever is greater, provided that the stockholder(s) and the nominee(s) satisfy the requirements in our by-laws. Under our by-laws, compliant notice of proxy access director nominations for the 20222024 annual meeting of stockholders must be submitted to the Corporate Secretary no earlier than November 10, 20218, 2023 and no later than December 10, 2021.8, 2023. The notice must contain the information required by the by-laws, a copy of which is available on our website at www.QuestDiagnostics.com or upon request from our Corporate Secretary.
Important Notice Regarding the Availability of Proxy Materials for the Stockholders Meeting to be held on May 21, 2021:17, 2023: Our proxy statement and Annual Report on Form 10-K for the year ended December 31, 20202022 are available on our website at www.QuestDiagnostics.com.
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| 79 | 2023 Proxy Statement |
Annex A
Reconciliation of Non-GAAP and GAAP Information
As used in this proxy statement, the term “reported” refers to measures under the accounting principles generally accepted in the United States (“GAAP”). The term “adjusted” refers to non-GAAP operating performance measures that exclude special items such as restructuring and integration charges, certain financial impacts resulting from the COVID-19 pandemic, amortization expense, excess tax benefits (“ETB”) associated with stock-based compensation, a gain on remeasurement of an equity interest, costs associated with donations, contributions and other financial support through Quest for Health Equity, the company’s recently announcedCompany’s initiative with the Quest Diagnostics Foundation to reduce health disparities in underserved communities, thea gain on sale of an ownership interest in a joint venture, gains associated with changes in the sale and leasebackcarrying value of a property,our strategic investments, and other items.
The non-GAAP adjusted measures included in “Compensation Discussion and Analysis” beginning on page 2324 are presented because management believes those measures are useful adjuncts to GAAP results. Non-GAAP adjusted measures should not be considered as an alternative to the corresponding measures determined under GAAP. Management may use these non-GAAP measures to evaluate our performance period over period and relative to competitors, to analyze the underlying trends in our business, to establish operational budgets and forecasts and for incentive compensation purposes. We believe that these non-GAAP measures are useful to investors and analysts to evaluate our performance period over period and relative to competitors, as well as to analyze the underlying trends in our business and to assess our performance. The tables below include reconciliations of non-GAAP adjusted measures to GAAP measures.
| Twelve Months Ended December 31, | Increase | |||||||||
| 2020 | 2019 | (Decrease) | ||||||||
| (dollars in millions except per, | ||||||||||
| share data) | ||||||||||
| Adjusted operating income: | ||||||||||
| Operating income | $ | 1,971 | $ | 1,231 | ||||||
| Restructuring and integration charges (a) | 58 | 78 | ||||||||
| COVID-19 impact (b) | 76 | - | ||||||||
| Other (c) | 2 | (89 | ) | |||||||
| Amortization expense | 103 | 96 | ||||||||
| Adjusted operating income | $ | 2,210 | $ | 1,316 | ||||||
| Adjusted operating income as a percentage of net revenues: | ||||||||||
| Operating income as a percentage of net revenues | 20.9 | % | 15.9% | 500 basis points | ||||||
| Restructuring and integration charges (a) | 0.6 | 1.0 | ||||||||
| COVID-19 impact (b) | 0.8 | - | ||||||||
| Other (c) | - | (1.1 | ) | |||||||
| Amortization expense | 1.1 | 1.2 | ||||||||
| Adjusted operating income as a percentage of net revenues | 23.4 | % | 17.0% | 640 basis points | ||||||
| Adjusted income from continuing operations attributed to Quest Diagnostics: | ||||||||||
| Income from continuing operations attributable to | ||||||||||
| Quest Diagnostics | $ | 1,431 | $ | 838 | ||||||
| Restructuring and integration charges (a) | 44 | 57 | ||||||||
| COVID-19 impact (b) | 53 | - | ||||||||
| Gain on remeasurement of equity interest (d) | (63 | ) | - | |||||||
| Amortization expense | 86 | 85 | ||||||||
| Other (c) | (1 | ) | (71 | ) | ||||||
| ETB | (23 | ) | (13 | ) | ||||||
| Twelve Months Ended December 31, | Increase | |||||||||||||
| 2022 | 2021 | (Decrease) | ||||||||||||
| (dollars in millions except per, share data) | ||||||||||||||
| Adjusted operating income: | ||||||||||||||
| Operating Income | $ | 1,428 | $ | 2,381 | ||||||||||
| Restructuring and integration charges (a) | 88 | 61 | ||||||||||||
| Quest for Health Equity costs (b) | 93 | 16 | ||||||||||||
| COVID-19 impact (c) | - | 4 | ||||||||||||
| Other (d) | 13 | - | ||||||||||||
| Amortization expense | 120 | 103 | ||||||||||||
| Adjusted operating income | $ | 1,742 | $ | 2,565 | ||||||||||
| Adjusted operating income as a percentage of net revenues: | ||||||||||||||
| Operating income as a percentage of net revenues | 14.5% | 22.1% | (760) basis points | |||||||||||
| Restructuring and integration charges (a) | 0.9 | 0.6 | ||||||||||||
| Quest for Health Equity costs (b) | 0.9 | 0.1 | ||||||||||||
| COVID-19 impact (c) | - | - | ||||||||||||
| Other (d) | 0.1 | - | ||||||||||||
| Amortization expense | 1.2 | 1.0 | ||||||||||||
| Adjusted operating income as a percentage of net revenues | 17.6% | 23.8% | (620) basis points | |||||||||||
| Adjusted net income attributable to Quest Diagnostics: | ||||||||||||||
| 2023 Proxy Statement | A-1 | |
| Adjusted income from continuing operations attributable to Quest Diagnostics | $ | 1,527 | $ | 896 | ||||||
| Adjusted diluted EPS from continuing operations: | ||||||||||
| Diluted earnings per common share from continuing operations | $ | 10.47 | $ | 6.13 | 70.8% | |||||
| Restructuring and integration charges (a) | 0.32 | 0.42 | ||||||||
| COVID-19 impact (b) | 0.39 | - | ||||||||
| Gain on remeasurement of equity interest (d) | (0.46 | ) | - | |||||||
| Other (c) | - | (0.50 | ) | |||||||
| Amortization expense | 0.63 | 0.61 | ||||||||
| ETB | (0.17 | ) | (0.10 | ) | ||||||
| Certain income tax items | - | - | ||||||||
| Adjusted diluted EPS from continuing operations | $ | 11.18 | $ | 6.56 | 70.4% |
| Net income attributable to Quest Diagnostics | $ | 946 | $ | 1,995 | ||||||||||
| Restructuring and integration charges (a)(g) | 66 | 45 | ||||||||||||
| Gains and losses on investments (e)(g) | 31 | (28) | ||||||||||||
| Quest for Health Equity costs (b)(g) | 69 | 12 | ||||||||||||
| Gain on sale of ownership in joint venture (f)(g) | - | (259) | ||||||||||||
| COVID-19 impact (c)(g) | - | 3 | ||||||||||||
| Other (d)(g) | (6) | - | ||||||||||||
| Amortization expense(g) | 89 | 78 | ||||||||||||
| ETB | (14) | (19) | ||||||||||||
| Adjusted income attributable to Quest Diagnostics | $ | 1,181 | $ | 1,827 | ||||||||||
| Adjusted diluted EPS: | ||||||||||||||
| Diluted earnings per common share | $ | 7.97 | $ | 15.55 | (48.7%) | |||||||||
| Restructuring and integration charges (a)(g) | 0.56 | 0.36 | ||||||||||||
| Gains and losses on investments (e)(g) | 0.26 | (0.24) | ||||||||||||
| Quest for Health Equity costs (b)(g) | 0.59 | 0.08 | ||||||||||||
| Gain on sale of ownership in joint venture (f)(g) | - | (2.02) | ||||||||||||
| COVID-19 impact (c)(g) | - | 0.03 | ||||||||||||
| Other (d)(g) | (0.05) | - | ||||||||||||
| Amortization expense(g) | 0.74 | 0.62 | ||||||||||||
| ETB | (0.12) | (0.14) | ||||||||||||
| Adjusted diluted earnings per common share | $ | 9.95 | $ | 14.24 | (30.1%) |
| (a) | For the twelve months ended December 31, |
| Twelve Months Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| (dollars in millions) | ||||||||
| Cost of services | $ | 27 | $ | 35 | ||||
| Selling, general and administrative | 31 | 43 | ||||||
| Operating income | $ | 58 | $ | 78 | ||||
| Twelve Months Ended December 31, | ||||||||||
| 2022 | 2021 | |||||||||
| (dollars in millions) | ||||||||||
| Cost of services | $ | 32 | $ | 30 | ||||||
| Selling, general and administrative | 56 | 31 | ||||||||
| Operating income | $ | 88 | $ | 61 | ||||||
| (b) | For both the twelve months ended December 31, |
The following table summarizes the pre-tax impact of these other items on the company’s consolidated statement of operations:
| Twelve Months Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| (dollars in millions) | ||||||||
| Cost of services | $ | 57 | $ | - | ||||
| Selling, general and administrative | 10 | - | ||||||
| Other operating (income) expense, net | 9 | - | ||||||
| Operating income | $ | 76 | $ | - | ||||
| Equity in earnings of equity method | ||||||||
| investees, net of taxes | $ | (4 | ) | $ | - | |||
| Net income attributable to noncontrolling | ||||||||
| interest | $ | 4 | $ | - | ||||
| A-2 | 2023 Proxy Statement |
| (c) | For the twelve months ended December 31, |
| | services. |
